2007 (10) TMI 275 - HC - Income Tax

Application for quashing the entire proceeding against the petitioners u/s 276 and 277 tribunal set aside original assessment by directing fresh assessment assessee paid tax as per fresh assessment - absence of any mala fide intention on the part of the petitioners in paying the income-tax - continuance of the criminal proceeding for which the petitioners are facing trial in the court below will only amount to an abuse of the process of law petition is allowed prosecution quashed

Summary

Issues: Quashing of criminal proceeding under sections 276 and 277 of the Income-tax Act, 1961.

Analysis:
1. The petitioners filed an application seeking to quash the criminal proceeding against them under sections 276 and 277 of the Income-tax Act, 1961, arising from a complaint case. The Special Judge, Economic Offences, Patna, had rejected their discharge petition.

2. The complaint was filed against the petitioner's firm and partners for offenses related to income tax payment in the assessment year 1991-92. The firm was alleged to have deliberately reduced the payable tax amount significantly.

3. The Income-tax Appellate Tribunal set aside the initial assessment by the Income-tax Officer and directed a reassessment. The petitioners complied with the tribunal's order, paid the revised tax amount, including penalties, and received a refund for the excess payment.

4. The petitioners argued that the criminal proceedings were initiated soon after the enhanced assessment, while they were challenging the original assessment in various legal forums. They contended that there was no wilful negligence in tax payment, as they followed legal procedures and promptly responded to the reassessment.

5. The petitioners claimed that the continuation of the criminal proceeding would amount to an abuse of the legal process, considering their compliance with the tribunal's orders and absence of any mala fide intentions in tax payment.

6. The counsel for the Income-tax Department acknowledged that the petitioners had paid the due tax amount as per the reassessment and had the right to challenge the initial assessment through legal avenues.

7. The court found merit in the petitioners' arguments and concluded that allowing the criminal proceeding to continue would constitute an abuse of the legal process. Consequently, the court quashed the entire proceeding, including the rejection order, in favor of the petitioners.