2017 (8) TMI 33 - HC - Income Tax

Case under Sections 276-C and 277 read with Section 278-B of the Income Tax Act - Held that - The penalty in the form of income tax was imposed upon the petitioners was set-aside by the Income Tax Appellant Tribunal by its order dated 29.09.2006 and the tax paid in excess was also refunded to the petitioners. Thus the criminal liability of the petitioners does not survives. Hence the prosecution of the petitioners company could not be permitted and it would be nothing but sheer waste of time and money of the court and the petitioners. In the facts and circumstances mentioned here in above the petition is liable to be allowed.

Summary

Issues involved:
1. Quashing of the order of summoning dated 31.03.2006 under Sections 276-C and 277 read with Section 278-B of the Income Tax Act, 1961.
2. Legality of filing a criminal case during the pendency of an appeal in the Income Tax Appellate Tribunal.

Detailed analysis:
Issue 1: The petitioners sought to quash the order of summoning dated 31.03.2006, passed by the Special Chief Judicial Magistrate, Customs (Economic Offences), Lucknow, under Sections 276-C and 277 read with Section 278-B of the Income Tax Act, 1961. The petitioners argued that the summoning order was against the law as they had already gone through a series of assessments and appeals resulting in adjustments to their taxable income. The Income Tax Department had processed their tax returns under various sections of the Income Tax Act, leading to a reduction in their tax liability. The petitioners contended that subsequent criminal proceedings were unjustified given the previous adjustments and refunds made by the Income Tax Department. The High Court, after considering the facts and legal precedents, allowed the petition and quashed the criminal proceedings against the petitioners.

Issue 2: The legality of filing a criminal case during the pendency of an appeal in the Income Tax Appellate Tribunal was also a crucial issue in this case. The petitioners argued that the filing of the criminal case under Sections 276-C and 277 read with Section 278-B of the Income Tax Act, 1961, while their appeal was pending before the Income Tax Appellate Tribunal, was impermissible under the law. They cited legal precedents where courts had opined that once penalties or tax liabilities were set aside or adjusted in appellate proceedings, the basis for criminal prosecution ceased to exist. The High Court, after examining relevant judgments, concluded that since the tax liabilities were adjusted and penalties set aside by the Income Tax Appellate Tribunal, the criminal liability of the petitioners no longer existed. Therefore, the court quashed the criminal proceedings initiated during the pendency of the appeal, considering it a waste of time and resources for both the court and the petitioners.

In summary, the High Court of Allahabad quashed the order of summoning dated 31.03.2006 under Sections 276-C and 277 read with Section 278-B of the Income Tax Act, 1961, based on the grounds that the tax liabilities were adjusted through appellate proceedings, rendering the criminal prosecution unnecessary and unjustified. The court emphasized the principle that once penalties or tax liabilities were set aside in appellate proceedings, the basis for criminal prosecution ceased to exist, leading to the quashing of the criminal proceedings against the petitioners.