Cleared by tax tribunal, still charged with corruption – SC says trial must go on

An architect and his son were cleared by the Income Tax Tribunal. The CBI still charged them with corruption. The Supreme Court just said: the tax order doesn't end the criminal case.

R.C. Sabharwal spent 27 years designing buildings for the New Delhi Municipal Corporation. By the time he retired in 1995, the CBI alleged, he had quietly assembled assets worth Rs. 2.05 crore — far more than his salary could explain. His son Puneet, the CBI said, helped him hide the money, funnelling Rs. 79 lakhs through Special Bearer Bonds and into a trust called Morni Devi Brij Lal.

Both father and son were charged. The father under the Prevention of Corruption Act, 1988 for possessing disproportionate assets. The son for abetting him — helping him commit the crime. They had one argument that they thought would end the case before it began: the Income Tax Appellate Tribunal (ITAT) had already examined the same facts and cleared them. No tax evasion, the tribunal said. So how could there be corruption?

The trial court refused to discharge them. The Delhi High Court refused too. On March 19, 2024, a Supreme Court bench of Justice K.V. Viswanathan and Justice Vikram Nath dismissed their appeals. The tax order, the court held, does not kill the criminal case. The two proceedings are fundamentally different animals.

When the ITAT said "clean chit"

The Sabharwals' argument sounded reasonable. The ITAT — the highest appellate body under the Income Tax Act — had examined the same financial records the CBI was relying on. The tribunal found no suppression of income, no hidden wealth, no tax evasion. If the tax authorities said the money was legitimate, the family argued, how could a criminal court say it was disproportionate?

This is a common instinct: one set of facts should produce one result. But the law does not work that way, especially when two different statutes are involved. The ITAT was applying the Income Tax Act. The criminal court was applying the Prevention of Corruption Act, 1988. The questions each statute asks are different. The standards of proof are different. The consequences are different.

The Sabharwals also pointed to the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 — a law that gave immunity to holders of certain bonds from inquiries about the source of their money. If the bonds were immune from tax investigation, they argued, the same immunity should protect them in a criminal case.

The Supreme Court disagreed on both counts.

Why the tax order doesn't bind the criminal court

The court turned to its own precedent in State of Karnataka v. Selvi J. Jayalalitha — the 2017 judgment involving the former Chief Minister of Tamil Nadu. In that case, the Supreme Court had held that findings of income tax authorities are not conclusive in corruption prosecutions. They are merely pieces of evidence. A trial court can consider them, but it is not bound by them.

The reasoning is straightforward. The Income Tax Act is a revenue statute. Its goal is to collect tax. The Prevention of Corruption Act is a criminal statute. Its goal is to punish public servants who abuse their office for private gain. The ITAT asks: did the taxpayer disclose enough income? The criminal court asks: did the public servant's assets exceed his known sources of income by a margin that suggests corruption?

These are not the same question. A person can be fully compliant with tax law and still be corrupt. A person can be cleared by the ITAT and still have to face a criminal trial.

The court also rejected the argument based on the Special Bearer Bonds Act. Section 3 of that Act grants immunity from certain inquiries — but Section 3(2) specifically says the immunity does not apply to offences under the Prevention of Corruption Act. Parliament had thought about this exact situation and carved out an exception. The bonds could not shield the Sabharwals from a corruption trial.

The real test at the charge stage

The Sabharwals were not asking for an acquittal. They were asking for a discharge — a decision by the court that the case should not proceed to trial at all because there was no evidence to support the charges. This is a lower threshold than acquittal. But it is still a high bar.

The Supreme Court clarified what the law requires at the stage of framing of charges. The court is not supposed to conduct a "dress rehearsal" of the trial. It is not supposed to weigh evidence, assess credibility, or decide which version of facts is more likely. The court only needs to see whether there is material on record that creates a "strong suspicion" that the accused committed the offence. If such material exists, charges must be framed and the case must go to trial.

In this case, the CBI had produced evidence that R.C. Sabharwal's assets were disproportionately large compared to his known income. The CBI had evidence that Puneet Sabharwal received funds through Special Bearer Bonds and held assets in a trust. Whether that evidence would ultimately prove the charges beyond reasonable doubt was a question for the trial, not for the charge stage.

The ITAT order, the court said, could be considered by the trial judge at the appropriate stage. But it could not be used to shut down the prosecution before the trial even began.

When civil exoneration does bar criminal prosecution

The Sabharwals relied on another precedent: Radheshyam Kejriwal v. State of West Bengal, where the Supreme Court had held that if a person is exonerated in adjudicatory proceedings under the same Act, the criminal prosecution under that Act should also be dropped. But the court distinguished that case. In Kejriwal, both the adjudication and the prosecution arose under the Foreign Exchange Regulation Act — the same statute, the same authority. Here, the adjudication was under the Income Tax Act and the prosecution was under the Prevention of Corruption Act. Different statutes. Different authorities. Different purposes.

The principle of Kejriwal does not apply across statutes. A clean chit from the ITAT does not mean a clean chit from the CBI.

The court also cited Ashoo Surendranath Tewari v. CBI, where it had held that even if a civil court or tribunal has given a finding, a criminal court is not bound by it. The criminal court must independently assess the evidence before it.

What this means for public servants and their families

This judgment has practical consequences for every public servant facing a disproportionate assets case. A favourable order from the Income Tax Appellate Tribunal is valuable — but it is not a shield. It does not prevent the CBI from filing a charge-sheet. It does not entitle the accused to a discharge. It is simply one piece of evidence that the trial court may consider alongside everything else.

For family members accused of abetting the public servant — like Puneet Sabharwal — the same logic applies. The fact that the ITAT did not find tax evasion does not mean the criminal court cannot find abetment of corruption. The two inquiries are independent.

The court also made a practical observation: the trial had been pending for nearly 25 years. The Supreme Court directed that it be concluded expeditiously, in any case on or before December 31, 2024. That deadline has now passed. Whether the trial concluded within that timeframe is unclear from the record.

THE PLAY: A tax tribunal's clean chit does not entitle you to discharge in a corruption case — the criminal court must independently assess whether the material on record creates a strong suspicion of guilt.

The court ended where it began: with two proceedings, two standards, and a single question that only a trial can answer.