2019 (8) TMI 1637 - HC - Income Tax

Lesser tax liability shown - offences under Sections 276C 277 and 278B of IT Act - Offence by partnership firm - complaint is of the year 2008 with respect to some anomaly in the disclosure of the petitioners for the Assessment Year 1994-95 (Financial Year 1993-94) and also when all the tax liabilities fixed on the petitioners have been paid - HELD THAT - No useful purpose would be served in allowing this prosecution to be continued any further. Even if the prosecution is taken to be for the purposes of retribution sufficient penalty has been imposed upon the petitioners which on litigation also has remained inviolate and the same has been paid. The tax liability also is stated to have been paid which statement has not been disputed by the learned counsel for the Income Tax Department. In fact it has been admitted in the counter affidavit that a No Dues Certificate has been given to the petitioners by the Department. Without going into the merits of the complaint with respect to the complaint being silent about the specific role played by the petitioners and the inference of culpable mental state of the petitioners in their capacity as partners of the firm this Court taking into account the year in which the offence was committed and the tax liability having been paid along with penalty deems it appropriate to quash the proceedings and all such orders arising from the complaint and the order of cognizance. The offences against the petitioners are pertaining to wrong disclosure with respect to their income. Though criminal prosecution has been provided for in the Act; nonetheless the elements of the offence veer around civil liability/liability attracting penalty of tax. When the petitioners have been paying income tax on an yearly basis and have not been prosecuted for any false disclosure either earlier to this prosecution or thereafter it would only be in the nature of harassment to the petitioners if this case is allowed to be continued. The provision contained in Section 482 Cr.P.C. stands tall amongst all provisions of the Code and non-exercise of the same also where it is needed results in miscarriage of justice. For the reasons aforestated viz. finding no good ground for allowing the prosecution to continue this Court deems it appropriate to quash the order of cognizance dated 25.07.2008 and all the criminal prosecution arising out of the same.

Summary

Issues:
Quashing of prosecution arising from Complaint Case No. 247-C of 2008 under Sections 276C, 277, and 278B of the Income Tax Act, 1961.

Analysis:
The petitioners sought the quashing of the prosecution initiated against them for alleged tax discrepancies in the Assessment Year 1994-95. They argued that the penalty and tax liabilities had been paid, rendering the prosecution unnecessary. The petitioners contended that the prosecution, initiated in 2008 for a 1994-95 anomaly, should not continue as all dues had been cleared. They also highlighted the death of the main accused and questioned their direct responsibility for the alleged discrepancies.

In response, the Income Tax Department argued that the payment of fines or tax liabilities does not absolve the accused of criminal liability. Emphasizing the importance of preventing false disclosures, they asserted that the prosecution should proceed despite delays. The department maintained that the accused should face trial as self-certification formed the basis of tax liability determination.

The court deliberated on the arguments presented. It acknowledged the payment of penalties and tax liabilities by the petitioners, which remained uncontested by the Income Tax Department. Considering the age of the case, the court deemed it appropriate to quash the proceedings, noting that the petitioners had fulfilled their financial obligations to the government.

The court invoked its inherent powers under Section 482 of the Criminal Procedure Code to prevent the abuse of court processes and ensure justice. Citing precedents, the court emphasized that such powers should be exercised judiciously. It highlighted that continuing the prosecution, where no loss to the public exchequer had occurred, would amount to an abuse of court processes.

Referring to the Supreme Court's observations in State of Karnataka Vs. L. Muniswamy & Ors., the court reiterated that inherent powers could be used to quash proceedings when they serve no useful purpose or when justice demands it. The court emphasized that the offenses primarily related to civil liabilities, and continuing the prosecution would only harass the petitioners, who had been compliant with tax obligations.

Ultimately, finding no valid grounds to sustain the prosecution, the court quashed the order of cognizance and all criminal proceedings stemming from the same, thereby allowing the petition in favor of the accused.