2007 (5) TMI 149 - HC - Income Tax

Offences and prosecution - Petitioner contended that once penalty proceedings u/s 271(1)(c) of the Act are set aside, no prosecution for the same could be launched on the ground of addition of income - Tribunal quashed the prosecution

Summary

Issues Involved:
1. Jurisdiction of the complainant to launch prosecution during the pendency of an application before the Settlement Commission.
2. Impact of the Settlement Commission's and appellate authorities' decisions on the criminal proceedings.
3. Continuation of criminal proceedings after exoneration in departmental proceedings.
4. The necessity of proving "concealment" and "mens rea" for prosecution under section 276C of the Income-tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Complainant:
The petitioner contended that once an application for settlement is filed before the Settlement Commission, the authority to decide on prosecution lies solely with the Settlement Commission. The complainant had no jurisdiction to launch prosecution until the Settlement Commission decided on the application. The court noted that the Settlement Commission dismissed the petitioner's application on November 30, 1994, and directed the petitioner to seek redressal before the appellate forum under the Act.

2. Impact of the Settlement Commission's and Appellate Authorities' Decisions:
The Settlement Commission dismissed the petitioner's application, which led to the petitioner appealing to the Commissioner of Income-tax (Appeals). The appeal was dismissed, and further appeals to the Income-tax Appellate Tribunal (ITAT) resulted in the penalty orders being set aside but the addition of income being upheld. The ITAT's decision was based on procedural grounds, noting that the petitioner was not given a full opportunity to rebut the evidence collected by the Income-tax Officer.

3. Continuation of Criminal Proceedings After Exoneration:
The court examined whether criminal proceedings could continue after exoneration in departmental proceedings. It was highlighted that if the exoneration was on technical grounds or by giving the benefit of the doubt, criminal proceedings could continue. However, if exoneration was on the merits, indicating no contravention of the Act, criminal prosecution should not continue. The ITAT's final decision on September 16, 2005, upheld the addition of income but set aside the penalty on the merits, indicating no concealment or inaccurate particulars of income by the petitioner.

4. Proving "Concealment" and "Mens Rea":
The court referred to the Supreme Court judgment in K.C. Builders v. Asst. CIT, which held that prosecution for concealment of income requires proving "mens rea." The ITAT's decision indicated that the Assessing Officer did not record satisfaction that the petitioner concealed income or furnished inaccurate particulars. Consequently, the penalty proceedings were set aside. The court concluded that since the ITAT found no concealment, the criminal prosecution under section 276C of the Act could not continue, aligning with the Supreme Court's ruling that quashing of prosecution is automatic when penalties for concealment are cancelled.

Conclusion:
The petition was allowed, and the complaint filed by the respondent was dismissed. The court emphasized that the findings of the ITAT on the merits, indicating no concealment, necessitated the quashing of the criminal prosecution. No costs were awarded.