2022 (2) TMI 48 - HC - Income Tax

Offences u/s 276C - tax evasion - false or bogus claims - incorrect claim of deduction u/s 54B - penalty proceedings under Section 271(1)(c) of the Act has also initiated - HELD THAT - It is not the case of the A.O.that the Asssessees claim were false or bogus. Excess amount was also paid by the Assessees. Thereafter penalty also levied. It is not in dispute that the above order has reached finality and the same has not been challenged. Therefore, any finding recorded by the ITAT in the similar allegations certainly binding on the Revenue. When the Tribunal has held that the Assessing Officer has presumed that the claim is bogus or false without making any enquiry. It is not the case of the Assessing Officer that the Claim is false or bogus. The Assessing Officer has not examined the claim of assessee and found whether they have given money to M/s. Alpha Commercials for the purpose of investment in the property. In the absence of any materials the Assessing Officer has presumed that the assessee claiming exemption is false or bogus. When the Appellate Tribunal has factually recorded the finding that there was no suppression of facts and the assessee has originally disclosed the receipt of the sale property, merely claimed deduction it cannot be said that there was wilful evasion of Tax. As recorded by the Appellate Tribunal the disclosure has been made. There is no suppression of facts. Therefore, it cannot be said that merely exemption is claimed to the property and the investment has not been made, the wilful evasion cannot be presumed as the Appellate Tribunal has found that there was no suppression. Therefore, initiation of prosecution on the similar allegations is nothing but futile exercise. It is also to be noted that the land in question measuring around 3.9 acres. Merely on the statement it is situated in urban area and the agriculture was not carried out at the relevant point of time, it cannot be said that there was suppression. At any event considering the factual aspects which was dealt by the Income Tax Appellate Tribunal, this Court is of the view that the continuation of the prosecution is waste of time and futile exercise. Accordingly, the proceedings initiated in E.O.C.C.75 of 2016 to E.O.C.C.82 of 2016 pending on the file of the of the Additional Chief Metropolitan Magistrate (E.O.II), Allikulam, Chennai, are quashed. - Decided in favour of assessee.

Issues Involved:
1. Alleged concealment of income and inaccurate particulars of income.
2. Validity of prosecution under Sections 276C and 277 of the Income Tax Act, 1961.
3. Relevance of penalty proceedings under Section 271(1)(c) in initiating prosecution.
4. Impact of the Income Tax Appellate Tribunal (ITAT) findings on the prosecution.
5. Consideration of precedents and legal principles from higher courts.

Detailed Analysis:

1. Alleged Concealment of Income and Inaccurate Particulars of Income:
The core allegation against the petitioners is that they filed returns of income for the Assessment Year 2010-11, claiming exemptions under Sections 54B and 54F of the Income Tax Act, 1961, which were later found to be incorrect. The petitioners sold lands at Neelangarai and claimed exemptions on the capital gains, which were not offered to tax. A survey under Section 133A revealed that the claims were incorrect, leading to the reopening of assessments and the filing of revised returns excluding the incorrect claims.

2. Validity of Prosecution under Sections 276C and 277 of the Income Tax Act, 1961:
The prosecution was initiated based on the penalty proceedings under Section 271(1)(c) for willful attempt to evade tax and concealment of income. The petitioners argued that the prosecution was initiated without proper application of mind and that the revised returns and payment of differential tax were made before the assessment order. The prosecution was triggered by the penalty proceedings confirmed by the Commissioner of Income Tax (Appeals), which led to the issuance of a show-cause notice for initiating prosecution.

3. Relevance of Penalty Proceedings under Section 271(1)(c) in Initiating Prosecution:
The petitioners contended that the penalty proceedings were set aside by the ITAT, which found that the Assessing Officer (AO) did not establish that the claims were false or bogus. The ITAT noted that the AO failed to investigate whether the petitioners had given money to M/s. Alpha Commercials for investment in property, and without such investigation, the AO could not presume the claims were false. The ITAT's findings indicated that the petitioners had disclosed the details of the sale and claimed deductions in good faith. Consequently, the penalty proceedings being set aside, the petitioners argued that the prosecution should also be quashed.

4. Impact of the Income Tax Appellate Tribunal (ITAT) Findings on the Prosecution:
The ITAT's findings were crucial in determining the validity of the prosecution. The ITAT held that the AO's presumption of false claims without investigation was not justified. The tribunal found that the petitioners had disclosed the sale details and claimed deductions based on a bona fide belief. The ITAT's decision to set aside the penalty proceedings was binding on the Revenue, and no further appeal was filed against this decision. The court recognized that the ITAT's findings, which exonerated the petitioners of any willful evasion, rendered the prosecution futile.

5. Consideration of Precedents and Legal Principles from Higher Courts:
The court considered several precedents, including the judgments in K.C. Builders and Another vs. Assistant Commissioner of Income Tax, Radheshyam Kejriwal vs. State of West Bengal and Another, and G.L. Didwania & Another vs. Income Tax Officer and Another. These cases established that when penalty proceedings are set aside, prosecution under similar grounds should also be quashed. The court noted that the ITAT's findings of no concealment or false claims were binding and that continuing the prosecution would result in unnecessary harassment and a waste of judicial time.

Conclusion:
The court concluded that the prosecution initiated under Sections 276C and 277 of the Income Tax Act, 1961, was based on the penalty proceedings, which were set aside by the ITAT. The ITAT's findings indicated no willful evasion or false claims by the petitioners. Therefore, the continuation of the prosecution was deemed a futile exercise, leading to the quashing of the proceedings in E.O.C.C. Nos. 75 to 82 of 2016. The Criminal Original Petitions were ordered, and the connected Miscellaneous Petitions were closed.

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