Prateek Chitkara vs Union of India - 2023 Supreme(Del) 5860

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2023 Supreme(Del) 5860

IN THE HIGH COURT OF DELHI AT NEW DELHI
Prathiba M. Singh, J.
Prateek Chitkara - Appellant
Versus
Union of India & Ors. - Respondents
W.P.(C) 10998 of 2022 & CM APPL. 41138 of 2022
Decided On : 26-09-2023

Important Points

The issuance of Look-Out Circulars must be justified by valid grounds such as cognizable offences or compelling economic interests; mere allegations without formal charges do not suffice.

Subject

Administrative Law - Economic Offences

Act Referred

Black Money Undisclosed Foreign Income and Assets and Imposition of Tax Act: S.51, S.10, S.3, S.30, S.41, S.60, S.8
Black Money Undisclosed Foreign Income and Assets and Imposition of Tax Rules: R.6(4)
CONSTITUTION OF INDIA: Art.21, Art.21(6), Art.53, Art.73, Art.77
INCOME TAX ACT: q376(c)(1), S.131(1)(a), S.132(3), S.153(a), S.153(c)

Headnote

(A) Income Tax Act, 1961 - Sections 132(3), 10(1), and 15; Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - Sections 3(1), 10(3), and 41 - Quashing of Look-Out Circular (LOC) - The petitioner, an Indian citizen and entrepreneur, sought to quash the LOC issued against him by the Income Tax Department due to an ongoing investigation under the Black Money Act, 2015. The petitioner claimed that he cooperated with the income tax authorities and that the LOC impeded his right to travel without valid grounds for issuance. Issuance of LOC justified only in cases involving cognizable offences or compelling economic interests of the country. No FIR or formal criminal proceedings initiated against petitioner, and ongoing inquiries examined undisclosed foreign income and assets without sufficient grounds for LOC’s justification. The Court ultimately modified the LOC to mere intimation subject to stringent conditions regarding travel. (Paras 1, 10, 32, 106, 110, 112)

Advocates appeared:
Mr. Akhil Sibal, Senior Advocate with Mr. Gaurav Gupta & Mr. Sharan Mehta, Advocates, for the Petitioner.
Mr. Anurag Ahluwalia, CGSC with Mr. Tarveen Singh Nanda, Govt. Pleader, for the Respondent-1 to 3.
Mr. Abhishek Maratha & Mr. Akshat Singh, Advocates, for Income tax Department.

Table of Content
1. petitioner background and business profile. (Para 1 , 2 , 3)
2. investigation details under the black money act. (Para 4 , 5 , 6 , 7 , 21 , 22)
3. impact of look-out circular on petitioner. (Para 8 , 9 , 10)
4. arguments from petitioner and respondents. (Para 28 , 29 , 30)
5. the petitioner’s stance on rights and loc justification. (Para 31)
6. court's observations on loc and procedural validity. (Para 32 , 33 , 34 , 35 , 36)
7. court's approach to modifying the loc based on facts. (Para 37 , 49 , 50 , 66)
8. final modification to loc and implications. (Para 90 , 97 , 108)
9. conclusion regarding loc modification. (Para 106 , 107 , 110 , 111)

JUDGMENT

Prathiba M. Singh, J.

Brief Facts

1. The present petition has been filed by the Petitioner - Mr. Prateek Chitkara, holder of Indian Passport nos. Z2303946 (valid until 31st January 2023) and Z6212946, praying for the quashing of, and seeking the reasons for, the issuance and continuation of the Look-Out Circular (hereinafter "LOC") issued against him at the behest of the Income Tax Department.

2. The Petitioner is an Indian citizen who claims to have deep roots in society, whose parents, wife and brother permanently reside in India. He is an educated and qualified young entrepreneur, who has built various well-recognised businesses including in the hospitality, jewellery and electronics sector.

3. According to the Petitioner, in recognition of his entrepreneurial skills, he has been conferred with various awards within India as well as internationally. The details of his ventures have been set out in paragraph 6 of the petition, which reads as under:

"6. After completing his formal education, the Petitioner ventured into business without any support or backing and very soon, at a very young age, launched various successful ventures such as Dengen Products India, Tiana (a famous silver jewellery brand which has two stores in the premium markets of Delhi, i.e. Khan market and Greater Kailash 1), Playboy Club Delhi (franchise of the world famous group), RSVP Club, Jazbaa, Velvet Room (all are famous hospitality clubs/restaurants) etc. In addition, the Petitioner has also successfully ventured into businesses relating to electronics. All the said brands are very successful in their right, having been singularly driven by the Petitioner's passion, commitment and hard work. All the said ventures required the Petitioner to constantly travel abroad for reasons including, but not limited to purchase of goods, negotiations, collaborating with entities abroad, entering into agreements etc. In fact, the Petitioner travelled extensively to China and Hong Kong for purchasing products from 2011 to 2016. In addition, the Petitioner has also frequently travelled abroad for personal reasons, including visits to his family."

4. On 7th December 2018, a search and seizure action was conducted under Section 132(3) of the INCOME TAX ACT , 1961, at the residence of the Petitioner at S-79, Greater Kailash-II, Delhi. It is claimed by the Income Tax Authorities, that the Petitioner remained untraceable and non-cooperative during the said search and seizure proceedings.

5. On 14th December 2018, notice was issued to the Petitioner under Section 10 (1) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter "Black Money Act, 2015"), requiring him to furnish information in relation to the undisclosed foreign assets that were found during the course of the investigations. The same was duly replied to by the Petitioner.

6. As per the Income Tax Authorities, the Petitioner was found to be running a network of companies through which funds were being transferred to Hong Kong. It was discovered that the Petitioner was a beneficial owner, shareholder and director in a Hong Kong based entity, namely, M/s Wise Sharp Tech Group Limited (hereinafter "WSTGL") which was incorporated in Hong Kong on 13th March 2014.The said company is stated to be struck off on 27th July 20