2022 (5) TMI 118 - HC - Income Tax

Offence u/s 276 C (2) - willful evasion of payment of tax or not - malicious prosecution - contention of the Standing Counsel for the Income Tax Department is that the failure to remit the tax and annexing the proof of payment of tax along with the returns filed on 31/07/2017 is sufficient to deem the assessee a defaulter - HELD THAT - In the instant case admittedly there is no concealment of any source of income or taxable item inclusion of a circumstance aimed to evade tax or furnishing of inaccurate particulars regarding any assessment or payment of tax. What is involved is only a failure on the part of the petitioner to pay the tax in time which was later on paid after 4 months along with interest payable. So it would not fall under the mischief of Section 276 C of the Income Tax Act which requires an attempt to evade tax and such attempt must be a wilful. If the intention (culpable mental state) of the assessee was to evade tax or attempt to evade tax they would not have filed the returns in time disclosing the income and the tax liable to be paid. They would not have remitted the tax payable along with interest without waiting for the authorities to make demand or notice for prosecution. Thus except a delay of 4 months in payment of tax it is clear that there was no tax evasion or attempt to evade the payment of tax. To invoke the deeming provision there should be a default in payment of tax in true sense. Nothing can be deemed contrary to the fact borne by record. If such deeming fiction is applied by the authority is has to be termed as non application of mind over the material records. In the instant case the Principal Commissioner of Income Tax who has accorded sanction on 14/03/2019 has not considered the payment of tax with interest by the assessee on 15/02/2018. The proceedings granting sanction to prosecute was contrary to the facts says it is seen from the AIMS that Self- Assessment amount of Rs.6, 85, 462/- is unpaid . Further the Principal Commissioner has conspicuously omitted to record the fact of payment of the tax with interest except to record that the tax was not paid within the time. On perusing the complaint this Court finds that the complaint was filed in the month of July-2019. At paragraph 9 of the complaint it states that The complainant states that the accused has failed to pay the tax liability of Rs.6, 85, 641/- along with its return of income filed on 31/07/2017. Till date the accused has not paid the above said tax amount due to the Department. (emphasis added). Thus the suppression of material facts intentional suggestion of falsehood and non-application of mind goes to show that this is a malicious prosecution initiated by the Income Tax authorities by abusing the power. When the malafide is patently manifested the petitioners need not be forced to undergo the ordeal of trial which has no legs to stand - Decided in favour of assessee.

Issues Involved:
1. Alleged wilful attempt to evade payment of Income Tax under Section 276C(2) of the Income Tax Act, 1961.
2. Validity of the prosecution sanction granted by the Principal Commissioner of Income Tax.
3. Applicability of Section 278E presumption of culpable mental state.
4. Suppression of facts and non-application of mind by the Income Tax authorities.

Issue-wise Detailed Analysis:

1. Alleged Wilful Attempt to Evade Payment of Income Tax:
The Income Tax Department filed a complaint alleging that the petitioners wilfully attempted to evade payment of Income Tax for the Assessment Year 2017-2018, thus committing an offense under Section 276C(2) of the Income Tax Act, 1961. The petitioners argued that they disclosed their income and tax payable while filing the returns but could not pay the tax due to financial constraints. They later paid the tax with interest before any prosecution proceedings were initiated. The court noted that there was no concealment of income or furnishing of inaccurate particulars, which are necessary to attract Section 276C. The delay in payment of tax, which was later paid with interest, does not constitute a wilful attempt to evade tax.

2. Validity of the Prosecution Sanction:
The petitioners contended that the sanction to prosecute was granted without considering the fact that the tax was paid with interest before the issuance of the show cause notice. The court observed that the Principal Commissioner of Income Tax did not consider the payment made by the petitioners on 15/02/2018 and falsely recorded that the tax was unpaid. This non-application of mind and suppression of facts rendered the prosecution sanction invalid.

3. Applicability of Section 278E Presumption of Culpable Mental State:
The Income Tax Department argued that under Section 278E, there is a statutory presumption of a culpable mental state to evade tax. However, the court clarified that this presumption applies only when the basic ingredients constituting the offense are disclosed. Since the tax was paid before the prosecution process was initiated, the presumption of a culpable mental state does not apply in this case. The court emphasized that the presumption can only be applied when there is an actual attempt to evade tax, which was not evident here.

4. Suppression of Facts and Non-application of Mind:
The court found that the complaint filed by the Income Tax Department suppressed the fact that the tax was paid with interest and falsely stated that the tax was unpaid. This suppression of material facts and non-application of mind indicated malicious prosecution by the Income Tax authorities. The court held that the petitioners should not be forced to undergo the ordeal of trial when the prosecution is based on falsehood and malafide intentions.

Conclusion:
The court quashed the complaint in E.O.C.C.No.132 of 2019, finding that the prosecution was initiated without considering the payment of tax with interest, thereby constituting non-application of mind and malicious prosecution. The petitions to quash the complaint were allowed, and the connected Miscellaneous Petitions were closed.

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