2014 (2) TMI 19 - SC - Income Tax

Willful and deliberate failure to file returns - Held that - Section 276CC applies to situations where an assessee has failed to file a return of income as required under Section 139 of the Act or in response to notices issued to the assessee under Section 142 or Section 148 of the Act - The proviso to Section 276CC gives some relief to genuine assesses who either file the returns belatedly but within the end of the assessment year or those who have paid substantial amounts of their tax dues by pre-paid taxes, from the rigor of the prosecution under Section 276CC of the Act The appellant has failed to furnish sufficient reasons for not furnishing the return within time and the contention of the assessee that the omission was not wilful cannot be accepted. Section 276CC contemplates that an offence is committed on the non-filing of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach The pendency of the assessment proceedings of the assessee doesnot relieve it from penalty prosecution. The declaration or statement made in the individual returns by partners that the accounts of the firm are not finalized, hence no return has been filed by the firm , will not absolve the firm in filing the statutory return under section 139(1) of the Act - The firm is independently required to file the return and merely because there has been a best judgment assessment under Section 144 would not nullify the liability of the firm to file the return as per Section 139(1) of the Act. Further u/s 278E, the presumption as to culpable mental state, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 For offences u/s 276CC the court has to presume the existence of mens rea and it is for the accused to prove the contrary and that too beyond reasonable doubt - The appellants have to prove the circumstances which prevented them from filing the returns as per Section 139(1) or in response to notices under Sections 142 and 148 of the Act - Decided against petitioner.

Issues Involved:
1. Liability to file returns under Section 139(1) of the Income Tax Act.
2. Effect of best judgment assessment under Section 144 on the liability to file returns.
3. Grounds for invoking Section 276CC for non-filing of returns.
4. Impact of pending appellate proceedings on prosecution under Section 276CC.
5. Scope and application of Section 278E regarding the presumption of culpable mental state.

Detailed Analysis:

1. Liability to File Returns under Section 139(1):
The court emphasized that Section 139 of the Income Tax Act mandates every person whose income exceeds the non-taxable limit to file a return before the due date. The due date, as defined in the Explanation to Section 139(1), is 30th November of the assessment year for companies and various other dates for different categories of assessees. The failure to file returns within this period attracts penalties and prosecution under Section 276CC. The court noted that the appellants did not file returns within the due date or even within the extended period provided under Sections 142 and 148 of the Act.

2. Effect of Best Judgment Assessment under Section 144:
The court clarified that a best judgment assessment under Section 144 does not nullify the liability of the assessee to file returns under Section 139(1). The court observed that the appellants' argument that the firm's accounts were not finalized and hence no returns were filed was not acceptable. The firm is independently required to file returns, and the best judgment assessment does not absolve this responsibility.

3. Grounds for Invoking Section 276CC:
Section 276CC applies when an assessee fails to file returns as required under Section 139(1) or in response to notices under Sections 142 or 148. The proviso to Section 276CC offers relief to genuine assessees who file returns belatedly but within the end of the assessment year or those who have paid substantial amounts of their tax dues by pre-paid taxes. The court noted that the appellants failed to file returns within the prescribed time under Sections 139, 142, and 148, making them liable for prosecution under Section 276CC.

4. Impact of Pending Appellate Proceedings:
The court rejected the argument that pending appellate proceedings should bar prosecution under Section 276CC. The court held that the offence under Section 276CC is committed upon the non-filing of returns and is unrelated to the pendency of assessment proceedings. The court emphasized that the legislative intent was clear, and there was no provision in Section 276CC to hold up prosecution until the completion of appellate proceedings.

5. Scope and Application of Section 278E:
Section 278E, which deals with the presumption of culpable mental state, places the burden on the accused to prove that the failure to file returns was not willful. The court stated that in prosecutions under Section 276CC, the existence of mens rea is presumed, and it is up to the accused to prove otherwise beyond a reasonable doubt. The appellants failed to demonstrate any circumstances that prevented them from filing returns as required by law.

Conclusion:
The court dismissed the appeals, affirming the High Court's decision and directing the trial court to complete the trial within four months. The judgment underscores the mandatory nature of filing returns under the Income Tax Act and the consequences of failing to comply with statutory requirements.

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