2019 (7) TMI 987 - HC - Income Tax

Quashing of prosecution u/s 276C and 277 - Penalty u/s 271(1)(c) deleted by CIT and confirmed by Tribunal - HELD THAT - Since the act of concealment of income is the main constituent for charge under Section 276C and 277 of the Act, once the CIT (Appeals) concluded that there was no concealment of income on the part of the assessee, the very foundation of the charge would not survive. It is also to be noted that against the order passed by the CIT (Appeals) deleting the penalty, the Revenue preferred second appeal before the Tribunal, Nagpur. However, the appeal filed by the Revenue was dismissed. The Revenue did not take up the matter further and thus the order passed by the Tribunal affirming the order passed by the CIT (Appeals) has attained finality. In the matter of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT the Supreme Court further observed that if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable. Supreme Court observe in para23 that the High Court is not justified in dismissing the criminal revision ignoring the settled law as laid down by the Supreme Court that the finding of the Appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been deleted by the complainant following the Appellate Tribunal's order, no offence survives under the Income Tax Act and thus quashing of prosecution is automatic . In the circumstances, this Court deems it appropriate to exercise its inherent power for quashing the proceeding of criminal case No.29362/1996 (Income Tax Officer, Rajnandgaon Vs. M/s System India Castings, Bhilai Others) pending before CJM, Durg and it is accordingly quashed.

Summary

Issues:
Quashment of criminal case proceedings under Sections 276C and 277 of the Income Tax Act, 1961 based on concealment of income.

Analysis:
The petition sought to quash the criminal case proceedings (No.29362/1996) pending before the CJM, Durg, involving charges under Sections 276C and 277 of the Income Tax Act, 1961. The standing counsel for the Income Tax Department argued that since the petitioners had already approached the trial Magistrate to drop the proceedings, the petition was not maintainable. However, the court proceeded to hear the matter on merits due to the settled legal position regarding the continuation of prosecution for such offences post-appellate orders. The Supreme Court's judgment in K.C. Builders case was cited to support this stance, emphasizing that if penalties for concealment of income were deleted by the Tribunal, the foundation of the charges would not survive.

The sanction order for the complaint detailed instances of alleged concealment of income by the assessee firm, leading to the initiation of criminal proceedings. However, subsequent developments revealed that the CIT (Appeals) concluded that there was no concealment of income by the assessee, resulting in the cancellation of the penalty imposed. The Revenue's appeal against this decision before the Tribunal was dismissed, making the Tribunal's order final. Citing the K.C. Builders case, the court highlighted that if penalties for concealment were set aside by the Tribunal, the prosecution could not proceed as there would be no concealment in the eyes of the law.

The court referred to the Supreme Court's observations in the K.C. Builders case, emphasizing that once penalties were deleted following the Tribunal's order, the prosecution could not be sustained, leading to the automatic quashing of the prosecution. Relying on the settled legal position established by the Supreme Court, the court deemed it unnecessary to direct the petitioners to pursue the matter before the trial Magistrate, who had kept their application pending. Consequently, exercising its inherent power, the court quashed the criminal case proceedings (No.29362/1996) involving charges under Sections 276C and 277 of the Income Tax Act, 1961.

In conclusion, the court allowed the petition, thereby quashing the criminal case proceedings against the petitioners. The judgment was based on the principles established by the Supreme Court in the K.C. Builders case, emphasizing that if penalties for concealment of income were deleted by the Tribunal, the prosecution could not be sustained, leading to the automatic quashing of the proceedings.