2011 (8) TMI 511 - HC - Income Tax

Addition - Penalty - Reassessment u/s 147 - Clarifications to the Board s Circulars No. 423 dated 26.6.85 and 432, 439, 440 and 441 dated 15.11.1985 and further Board s Circular No. 451 dated 17.2.1986, the surrendered amount of Rs. 3,15,000/- could not be considered for the purpose of levy of penalty u/s 27(1)(c) of the Act - So far as the other addition of Rs. 35,000/- made in the asstt. Order which has also been made the basis for levy of penalty, even that addition does not survive in view of the ld. ITAT having deleted the same - Once the penalty is deleted, the basis for criminal proceedings goes and the continuation of the criminal proceedings on the basis of the said penalty would be nothing but an abuse of process of law - Amnesty scheme was introduced and the petitioners availed benefit of the same and had surrendered the amount of Rs. 3,15,000/- by furnishing revised return on 27.3.1986 and had paid the tax accordingly on the said amount. The addition of Rs. 35,000/- made in the assessment order was made on the basis of levy of penalty and since the penalty had been deleted, the said addition was also liable to be ignored - Decided in favour of assessee.

Summary

Issues Involved:
Petition under Section 482 of the Code of Criminal Procedure for quashing of complaint and subsequent proceedings based on income tax assessment, surrender under Amnesty Scheme, imposition of penalty, and criminal prosecution.

Analysis:

1. Quashing of Complaint and Proceedings:
The petitioners sought to quash the complaint and subsequent proceedings arising from an income tax assessment order. The case revolved around the concealment of income, surrender under the Amnesty Scheme, and imposition of penalties. The petitioners argued that after challenging the assessment order and surrendering the amount under the Amnesty Scheme, the additions made were accepted except for a specific amount disallowed. The Tribunal's decision to recall the finding regarding the levy of interest further supported the petitioners' position. The High Court emphasized that if penalties were set aside, there was no basis for criminal proceedings. The court relied on legal precedents to support the quashing of the proceedings, highlighting that once the penalty was deleted, continuing with the criminal case would be an abuse of the legal process.

2. Legal Interpretations and Precedents:
The judgment referenced legal interpretations from previous cases, including 'K.C. Builders' and 'Gupta Constructions Co.,' to establish that if penalties were set aside in departmental proceedings, the basis for criminal prosecution was undermined. The court emphasized that the power to quash criminal proceedings should be exercised sparingly and only in exceptional cases. Reference was made to the Supreme Court's guidelines on when the High Court could intervene to prevent abuse of legal processes or ensure justice. The court highlighted the importance of not initiating criminal proceedings based on penalties that had been invalidated through appellate or tribunal decisions.

3. Application of Amnesty Scheme and Circulars:
The judgment delved into the application of circulars related to the Amnesty Scheme issued by the government. It discussed the surrender of amounts under the scheme and the implications on penalty imposition. The Commissioner of Income Tax (Appeals) had ruled that the surrendered amount could not be considered for penalty levy, and the addition made for penalty imposition was also invalidated by the ITAT decision. This ruling further weakened the basis for criminal prosecution, leading to the quashing of the complaint and subsequent proceedings against the petitioners.

4. Conclusion and Quashing of Proceedings:
Considering the facts and circumstances, the court allowed the petition, quashing the complaint, summoning order, and subsequent proceedings. The judgment highlighted that since the penalty imposed by the Assessment Officer had been deleted, the foundation for the criminal proceedings ceased to exist. The court's decision was based on the principle that continuing with the prosecution after the penalty's deletion would amount to injustice and an abuse of the legal system. As a result, the complaint and all related proceedings were quashed, providing relief to the petitioners in this case.