Madras High Court Upholds Transfer of Income Tax Criminal Complaints to Special Court for MPs/MLAs: Srinidhi Karti Chidambaram Case

Case Overview

Case Name: Srinidhi Karti Chidambaram Vs Deputy Director of Income Tax (Investigation) (Madras High Court)

Order Date: 12 May 2020

Petitions Involved: Crl.O.P. Nos. 22136 and 22137 of 2019 and 1526 and 1527 of 2020

The Madras High Court, through a single consolidated order, disposed of four Criminal Original Petitions arising out of two income tax prosecution complaints. The petitions raised twin challenges — first, seeking quashing of the underlying criminal complaints, and second, contesting the validity of the transfer of those complaints from the Economic Offences Court to the Special Court designated for trying criminal cases involving elected and former Members of Parliament and Members of Legislative Assembly in Tamil Nadu.

Background and Factual Matrix

The Criminal Complaints

The two criminal complaints at the heart of this matter were originally registered as E.O.C. Nos. 266 and 267 of 2018 before the Additional Chief Metropolitan Magistrate (Economic Offences-II), Egmore, Chennai. Following administrative and judicial developments, they were transferred to the Special Court for trial of criminal cases related to elected MPs/MLAs of Tamil Nadu at Singaravelar Maligai, Chennai, where they were renumbered as C.C. Nos. 15 and 16 of 2019.

The complaints were instituted by the Deputy Director of Income Tax (Investigation) under Section 200 of the Code of Criminal Procedure, 1973.

  • First Criminal Complaint: Alleged offences under Sections 276C(1) and 277 of the Income Tax Act, 1961, pertaining to Assessment Year 2014-15. This complaint named a single accused.
  • Second Criminal Complaint: Alleged offences under Sections 276C(1) and 277 read with Section 278 of the Income Tax Act, 1961, pertaining to Assessment Year 2015-16. This complaint named the same accused along with his spouse.

Factual Background of the Prosecution

The assessees had filed income tax returns for the two relevant assessment years, which included income declared from the sale of immovable properties situated in Muttukadu Village, Kancheepuram District, Tamil Nadu. Assessment orders were subsequently passed by the Income Tax Department.

The Department thereafter issued notices under Section 148 of the Income Tax Act, 1961 for reopening the assessments. The assessees responded by refiling their returns without modifications and simultaneously sought disclosure of the reasons for reopening, placing reliance on the principle established by the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others reported in (2003) 1 SCC 72.

Notably, before the Department furnished reasons as required under the GKN Driveshafts principle, the assessees received summons from the Magistrate Court in connection with the criminal complaints. The Department subsequently communicated that the basis for reopening was the allegation that a portion of the sale consideration for the immovable property had been received in cash and deliberately omitted from the income tax returns.

Search and Seizure Operations

The prosecution's case rested significantly on search and seizure operations:

  1. The Enforcement Directorate conducted a search at the offices of Advantage Strategic Consulting Pvt. Ltd., a company in which one of the assessees was a Director. Soft copies of documents recovered during this search were shared with the Income Tax Department.
  2. The Income Tax Department independently conducted a search under Section 132 of the Income Tax Act, 1961 on 05.07.2018 at the premises of the purchaser company — the entity that had purchased the land from the assessees — and recovered approximately 163 small notebooks.

According to the prosecution, a combined reading of the entries in the soft copies recovered from the first company and the entries in the notebooks recovered from the purchaser company, when read alongside statements given by the Managing Director and Cashier of the purchaser company, corroborated the allegation that the assessees had received part of the sale consideration in cash and suppressed it from their returns.

Transfer to the MP/MLA Special Court

Supreme Court Directions and Establishment of Special Court

The Supreme Court, in the Public Interest Litigation Ashwini Kumar Upadhyay (W.P.(C) No. 699 of 2016), passed directions on 01.11.2017 and 14.12.2017 for establishment of special courts across the country to try criminal cases involving sitting and former elected Members of Parliament and Legislative Assemblies.

In Tamil Nadu, this led to the issuance of: