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IMPORTANCE OF SERVICE OF DOCUMENTS REFERRED IN THE

SHOW CAUSE NOTICE ISSUED UNDER (INDIAN) INCOME TAX ACT,
1961
AND
(INDIAN) BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND
ASSETS) AND IMPOSITION OF TAX ACT, 2015
By
*Vijay Pal Dalmia, Advocate & Partner Vaish Associates
Email: vpdalmia@vaishlaw.com Mobile: +91 9810081079
&
Rajat Jain, Advocate
Email: rajatjain@vaishlaw.com Mobile: +91 9953887311

The Division Bench of Delhi High Court while deciding the writ petition
nos. W.P.(C) 3732/2017 and W.P.(C) 3749/2017
(http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=90237&yr=2017), has
signified the importance of the principle of natural justice in the Indian
legal framework. The short point involved in these writ petitions was that
neither of the Petitioners were furnished with the copies of the documents
relied upon in the Show Cause Notice (Notice) issued to them by the
Income Tax Department (Department). Both the petitioners sought
copies of the documents and their statements referred to in the respective
Notices to enable them to file appropriate response.
Prior to the issuance of Notices, searches were conducted at the
respective residences of the Petitioners and during the search, several
documents were seized and statements were recorded of the Petitioners.
Pursuant to the searches, two separate Notices were issued to each of the
Petitioners, proposing their prosecution under Section 276 C (1) and
Section 277 of the Income Tax Act, 1961 (IT Act) as well as under
Section 181 of the Indian Penal Code, 1860 (IPC) and Sections 50 and 51
of the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 (Black Money Act).
After the issuance of Notices, Petitioners made representations before the
Department for seeking copies of the documents and their statements
referred to in the Notices. In response to the Notices, Petitioners sent a
response wherein all the allegation levelled in the Notices were denied
and also stated therein that without being furnished all the documents
referred in the Notices they would not be able to give appropriate reply.
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Thereafter, the Assistant Director of the Income Tax (ADIT) sent a reply to
each of the Petitioners stating that the said documents have been
confronted to the Petitioners during the course of search and further
opportunities had already been granted earlier by the summons issued to
them under Section 131 (1A) of the IT Act. Aggrieved by the act of the
Department of not providing such documents, writ petitions were filed.
During the course of hearing, it was contented by the Respondents that
under Article 26(2) of the OECD Model Tax Convention on Income and on
Capital ('OECD Model Convention'), there is a restriction on the authorities
in India sharing information that may have been obtained from foreign
countries and such prohibition comes in the way of the Respondents
furnishing copies of the said documents to the Petitioners as the
documents relied upon in the Show Cause Notices include statement of
bank accounts maintained with foreign banks, It was further contented
that there is no requirement for issuing show cause notice to the
Petitioners in terms of Section 279 of the IT Act.
Article 26(2) of the OECD Model Convention states as under:
Any information received under paragraph 1 by a Contracting State
shall be treated as secret in the same manner as information
obtained under the domestic laws of that State and shall be
disclosed only to persons or authorities (including courts and
administrative bodies) concerned with the assessment or collection
of, the enforcement or prosecution in respect of, the determination
of appeals in relation to the taxes referred to in paragraph 1, or the
oversight of the above. Such persons or authorities shall use the
information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions.
Notwithstanding the foregoing, information received by a
Contracting State may be used for other purposes when
such information may be used for such other purposes
under the laws of both States and the competent authority
of the supplying State authorises such use.

The Honble Court after perusing the aforesaid Article observed that the
exception includes both the persons and authorities and stated as
under:
It is inconceivable that the person against whom the prosecution or
the proceedings is proposed can be denied the material relied upon
to prosecute such person. The basic principle of natural justice
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requires that the person being proceeded against has to be

furnished with copies of the material (whether in the form of
documents or statements) gathered against such person and which
is being relied upon by the authority which is prosecuting such
person. This may, in a given case, and if the prosecution or agency
makes out a case in that behalf, be subject to safeguards requiring
the person to maintain the confidentiality of such document
depending on their nature and contents. But to say that the
person being prosecuted or proceeded against can only be
'shown' such documents, but not provided copies thereof is
untenable even on a plain reading of Article 26 (2) of the
OECD Model Convention.

With dissenting with the contention of the Respondents that a show cause
notice is not required to be issued, the Honble Court observed as under:
Department itself recognises the importance of complying with the
rules of natural justice and has therefore rightly issued the Show
Cause Notice to the Petitioners, which has to be responded to by
them. Indeed, for an effective response, the Petitioners would be
required not merely to be 'shown' the material relied upon in the
Show Cause Notice but with copies thereof. This would include their
own statements, documents seized during the search and
documents gathered from other sources including statements of
bank accounts, relied upon against them to be provided copies
thereof. Such a requirement inheres in the principles of
natural justice and would be applicable even if the statute
governing the proceedings does not specifically mandate it.

While disposing the writ petitions, the Honble Court directed the
Respondents to provide to each of the Petitioners copies of the documents
referred to and relied upon in the Notices issued to the Petitioners.
Comments:
The decision of the Honble Court reiterates and reaffirms the well-
established principle of law propounded by the Supreme Court of India
and various High Courts. It has been observed by the authors during the
course of their practise of trial of criminal cases that Income Tax
Department has repeatedly initiated criminal complaints without paying
any heed to the requests made by the parties for supplying the
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Mohan Dev Building, 13, Tolstoy Marg,
New Delhi 110001 (India)
Phone: +91 11 42492532 (Direct)
Phone: +91 11 42492525 Ext 532
Mobile :- 9810081079
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documents relied upon in the show cause notices by the Department

issued under Section 276 C (1) and Section 277 of the Income Tax Act,
1961, Section 181 of the Indian Penal Code, 1860 and Sections 50 and 51
of the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015. This way of Income Tax Department can even
fall into the category of Contempt of Court, as there is no dearth of
judgments holding the proposition affirmed by the Honble High Court.
The present decision clearly signifies the necessity of compliance of the
principle of natural justice by the Income Tax Department. The show cause
notices are issued by the Income Tax Department for giving opportunity to
the defaulter/ receiver to put his case before them to enable them to take
a decision whether any further action is required to be taken or not. The
primary purpose of the show cause notice is to give a fair opportunity to
the defaulter/ receiver to defend himself and if, certain documents which
are relied by the Department for issuing show cause notice are not
provided to the person, the whole intend of issuing such notices would get
defeated as a fair opportunity of contesting the matter in its spirit will be
taken away and it will be a mere formality.

Authors
*Vijay Pal Dalmia (Partner Vaish Associates Advocates) And Rajat Jain, Advocate
Phone: +91 11 42492532 (Direct) Mobile: +91 9810081079
Email: vpdalmia@vaishlaw.com & rajatjain@vaishlaw.com
www.vaishlaw.com

* Vijay Pal Dalmia is a senior litigator with 30 years of experience in court trials and deals
with cases relating to prosecution under the Income Tax Act, 1961, The Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Money
Laundering Act, economic offences and white collar crimes.

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the basis of a contract. The material contained in this document does not constitute/substitute
professional advice that maybe required before acting on any matter. No claim is made by
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Phone: +91 11 42492532 (Direct)
Phone: +91 11 42492525 Ext 532
Mobile :- 9810081079
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