2022 (2) TMI 1064 - HC - Income Tax

Offence u/s 276(c)(1) and 277 - petitioner filed incorrect Income Tax Returns declining loss of business - Seizure of documents in search proceedings - HELD THAT - During search, some documents were seized by the respondent. On verification, it was found that the loss accounted was not corroborated with the books of account and also found that the books of account of his business were not properly maintained by the petitioner. On assessment of notice, the petitioner filed revised Income Tax Returns and also paid the penalty - deletions made in the assessment was purely on the basis of difference of opinion as to the estimates and not a case of concealment of income or even furnishing of inaccurate particulars of income. To attract the provisions of Section 276C prosecution has to establish that the accused willfully attempted in any manner to evade any tax, penalty or interest chargeable or imposable under the Act. To attract the provisions of Section 277 of the Act, the prosecution is required to establish that the accused made a statement in any verification under the Act, which he either knows or believes to be false, or does not believe to be true. Presumption under Section 132(4)(a) of the Act is with regard to the books of account or the other documents found in possession of a person from whom it is seized. The same presumption shall not apply for offence, under Section 276(c) and 277 of the Act. There is no act of concealment on the part of the assessee. The gravamen of indictment relates to filing of incorrect return and making wrong verification of the statements filed in support of the return, resulting in initiation of penalty proceedings. Admittedly, in this case, it is only wrong calculation of the loss sustained in his business, which is not supported by the books of account or other documents. The petitioner paid the penalty as early as on 23.04.2014. Three years thereafter, show cause notices were issued to the petitioner. In these cases, the entire payments paid by the petitioner and there is no intention to evade payment. The Assessment Orders shows that only penalty was levied for wrong calculation of loss and no concealment of income, penalty paid in the year 2014. In this case, there is no material to show that there was any deliberate and conscious evasion of tax on the part of the petitioner. In this case, there is no concealment of income. - Decided in favour of assessee.

Summary

Issues:
Quashing of proceedings in E.O.C.C.Nos.582 & 583 of 2017 based on penalty levied under the Income Tax Act, 1961 for not maintaining proper books of account and filing incorrect income tax returns.

Analysis:
1. Case Summary: The petitioner admitted a loss in the Income Tax Return for the Assessment Year 2007-08, but during a search operation under Section 132 of the Income Tax Act, discrepancies in maintaining proper books of account were found. Consequently, a notice under Section 153A of the Act was issued, leading to a revised return with a lower loss amount. Penalty proceedings were initiated, and the petitioner paid the penalty. Similar issues arose for the Assessment Year 2008-09, resulting in penalty and prosecution.

2. Prosecution Allegations: The prosecution alleged that the petitioner filed incorrect income tax returns and failed to maintain proper books of account, leading to discrepancies during search operations. The prosecution obtained sanctions and filed complaints under Section 276(c)(1) and 277 of the Act for the Assessment Years 2007-08 and 2008-09.

3. Petitioner's Defense: The petitioner argued that the penalty was imposed due to discrepancies in expenditure verification, not willful tax evasion. The petitioner maintained that no tax was due, and the penalty was paid for non-maintenance of proper books, not evasion. The defense emphasized the absence of mens rea for tax evasion.

4. Legal Analysis: The court examined the prosecution's burden to prove willful attempts to evade tax, penalty, or interest under Sections 276C and 277 of the Act. It noted that the petitioner's actions did not amount to concealment but were based on incorrect calculations without intent to evade taxes.

5. Judicial Precedents: The court cited legal precedents emphasizing the necessity of mens rea and deliberate evasion for tax offenses. It highlighted that mere omissions or negligence do not constitute an offense without intent to evade taxes.

6. Decision: Considering the absence of deliberate tax evasion, the court quashed the proceedings in E.O.C.C.Nos.582 & 583 of 2017, as continuing prosecution would amount to an abuse of the legal process. The court ruled in favor of the petitioner, allowing the Criminal Original Petitions and closing the connected Criminal Miscellaneous Petitions.