2005 (1) TMI 55 - HC - Income Tax

This revision application has been preferred by the petitioner against the order passed by the Special Judge (Economic Offence), whereby he refused to discharge the accused persons under section 245 of the Cr. P. C. for the offence punishable under sections 276C and 277 of the Income-tax Act, 1961 - It is a well-established principle that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless and until the act of the appellants could have been described as culpable. Thus we hold that the criminal proceeding, in question pending in the Court of Special Judge (Economic Offence) is uncalled for. Pendency of such case will not serve the interest of any of the party, the original order of assessment having been modified. In the circumstances, the proceeding aforesaid, pending before the Court of Special Judge (Economic Offence) is quashed. This application is allowed.

Summary

Issues Involved:
1. Refusal to discharge accused under section 245 of Cr. P. C.
2. Allegations of wilful attempt to evade tax under sections 276C and 277 of the Income-tax Act, 1961.
3. Validity of penalty imposed under section 271(1)(c) of the Income-tax Act.
4. Impact of Income-tax Appellate Tribunal's judgment on criminal proceedings.
5. Applicability of section 279(1A) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Refusal to discharge accused under section 245 of Cr. P. C.:
The petitioner challenged the order dated July 19, 2003, by the Special Judge (Economic Offence) at Jamshedpur, which refused to discharge the accused under section 245 of the Cr. P. C. for offences under sections 276C and 277 of the Income-tax Act, 1961. The court took cognizance of the offences and issued summons against the accused based on the complaint filed by the Income-tax Department.

2. Allegations of wilful attempt to evade tax under sections 276C and 277 of the Income-tax Act, 1961:
The complaint alleged that the company filed a return declaring a total loss of Rs. 1,80,85,820, which was later assessed at an income of Rs. 16,85,510. The Revenue disallowed deductions claimed for excise duty and warranty expenses, leading to a penalty under section 271(1)(c) of the Act. The complaint accused the company of wilfully attempting to evade tax by furnishing incorrect particulars and making false statements in verification.

3. Validity of penalty imposed under section 271(1)(c) of the Income-tax Act:
The company contested the penalty of Rs. 1,00,05,486 imposed by the Deputy Commissioner of Income-tax. The Income-tax Appellate Tribunal allowed the company's appeal regarding the excise duty deduction, reversing the Commissioner of Income-tax (Appeals)'s order. The Tribunal remanded the issue of warranty expenses for fresh examination. The Tribunal's order led to the Deputy Commissioner passing a consequential order allowing relief to the company.

4. Impact of Income-tax Appellate Tribunal's judgment on criminal proceedings:
The Tribunal's judgment in favor of the company raised the question of whether the criminal proceedings under sections 276C and 277 were justified. The Supreme Court's ruling in K.C. Builders v. Assistant CIT was cited, stating that once penalties for concealment are cancelled, prosecution under section 276C is automatically quashed. The court noted that the original assessment order was modified, and the matter of warranty expenses was still pending, making it premature to determine tax evasion.

5. Applicability of section 279(1A) of the Income-tax Act:
The Revenue argued that the company was not entitled to protection under section 279(1A) of the Act, which prevents prosecution if the penalty under section 271 is reduced or waived. The court found no fresh assessment order or penalty imposition after the Tribunal's remand, rendering the criminal proceedings baseless.

Conclusion:
The court concluded that the criminal proceedings were uncalled for, as the original assessment was modified, and the assessment for the financial year in question had not reached finality. The proceedings in Case No. C/1-441 of 1992 were quashed, and the application was allowed, aligning with the Supreme Court's principle that criminal proceedings should not proceed when the Tribunal has settled the matter in favor of the assessee.