2007 (3) TMI 179 - HC - Income Tax

Offences and prosecution - AO made addition in the total income of assessee on the ground of source of loan declared by assessee not found genuine - Addition confirm but prosecution proceedings stayed till decision was rendered by the tribunal

Summary

Issues:
1. Quashing of proceedings under sections 276C, 277, and 278B of the Income-tax Act, 1961.
2. Applicability of penalty under section 27 of the Act.
3. Legality of prosecution during the pendency of appeal before the Income-tax Appellate Tribunal.

Analysis:
Issue 1: The petitioners sought to quash the proceedings in C. C. No. 83 of 2006 under sections 276C, 277, and 278B of the Income-tax Act, 1961. The petitioners were accused of concealing income and providing false information in their income tax return. The Assessing Officer disallowed excess depreciation and donations, leading to unexplained income. The Commissioner of Income-tax (Appeals) upheld the penalty imposed on the petitioners. The petitioners argued that the prosecution was illegal and should be quashed due to pending appeals.

Issue 2: The petitioners contended that penalty under section 27 of the Act was not applicable as they had not suppressed any income. They argued that the addition of income and penalty were unjustified. Citing legal precedents, the petitioners claimed that the prosecution was illegal and should be quashed. The court considered previous judgments where criminal proceedings were quashed when no concealment or inaccurate particulars were found.

Issue 3: The court referred to legal precedents where the Tribunal's findings influenced the continuation of prosecution. It was noted that the prosecution could be maintained during the appeal before the Income-tax Appellate Tribunal, but its continuation depended on the Tribunal's judgment. The court decided not to quash the proceedings but stayed the prosecution until the Income-tax Appellate Tribunal's decision.

In conclusion, the court dismissed the criminal petition but stayed the prosecution proceedings pending the Income-tax Appellate Tribunal's decision. The judgment highlighted the importance of Tribunal findings in determining the legality of prosecution and the applicability of penalties under the Income-tax Act.