2022 (6) TMI 898 - HC - Income Tax

Offence u/s 276CC - sanction u/s 279(1) for launching prosecution u/s 276CC - offence alleged is compoundable or not? - Evasion of tax - concealment of taxable income - petitioners submits that since the offence is compoundable, if one more opportunity is given to them they would compound the offence and come out the prosecution - HELD THAT - The opportunity given was only once by way of show cause notice seeking explanation from the hands of the petitioners. Jurisdictional issue is also raised by the learned counsel but would restrict his submissions seeking one more opportunity to compound. Department would not refute the position that notices are issued while according sanction for prosecution in respect of offences punishable under Section 276CC. The learned counsel would, however, accept that one more opportunity could be given to the petitioners to compound the offence in the light of no further proceedings have happened as interim order is operating in the case at hand throughout the pendency of these proceedings. In the light of what is quoted in the order of sanction we deem it appropriate to accept the submission of the learned counsel appearing for the petitioners more so on two grounds (i) since the offence alleged is compoundable and an opportunity ought to have been granted by the respondents/ department and (ii) though an opportunity is granted, the learned counsel for the petitioner submits, at that point in time the petitioner in Writ Petition No.112881 of 2019 was hospitalised and others were taking care of him - if one more opportunity is granted and compounding is permitted no prejudice would be caused to the Department. The other ground is that the interim order staying all further proceedings pursuant to the private complaint registered is operating in the cases at hand throughout and the prosecution has not proceeded further except cognizance being taken on the registration of private complaint by the respondents. Order - Writ petitions are allowed in part subject to the assessees /petitioners filing applications for compounding within 6 weeks from the date of receipt of a copy of this order.The respondents shall pass appropriate order accepting or declining to accept such compounding within a reasonable time thereafter.

Issues Involved:
1. Challenge to the complaint registered by the Department of Income-Tax.
2. Order of the criminal Court taking cognizance of the offence.
3. Prosecution under Section 276CC of the Income Tax Act, 1961.
4. Opportunity to compound the offence.

Detailed Analysis:

1. Challenge to the Complaint Registered by the Department of Income-Tax:
The petitions challenge the complaint registered by the respondents/Department of Income-Tax and the order of the criminal Court taking cognizance of the offence. The petitioners are independent income tax assessees who were subjected to a search and seizure action under Section 132 of the Income Tax Act, 1961. During this search, it was found that the assessees had not reported income from a joint development project, despite showing receipts. Consequently, proceedings were initiated under Section 276CC of the Act for willful failure to furnish returns of income.

2. Order of the Criminal Court Taking Cognizance of the Offence:
The criminal Court took cognizance of the offence based on the findings from the search and seizure operation. The order granting sanction under Section 279(1) of the Act for launching prosecution under Section 276CC detailed the income earned from the project and the failure of the assessees to file returns for the relevant assessment year. The Court found that the assessees had willfully evaded tax by not filing returns, thereby attracting provisions of Section 276CC.

3. Prosecution under Section 276CC of the Income Tax Act, 1961:
Section 276CC deals with the failure to furnish returns of income. It stipulates rigorous imprisonment and fines for willful failure to file returns when required. The prosecution was initiated after the assessees failed to respond to show cause notices issued by the Department. The order of sanction emphasized that the assessees had earned significant income from the joint development project but did not file returns, justifying the initiation of prosecution under Section 276CC.

4. Opportunity to Compound the Offence:
The learned counsel for the petitioners argued that since the offence is compoundable, the petitioners should be given another opportunity to compound the offence. The Department did not refute this position and agreed that one more opportunity could be granted. The Court noted that granting another opportunity to compound the offence would not prejudice the Department, especially since the interim order staying further proceedings was in effect throughout the pendency of these proceedings.

Order:
The Court passed the following order:
(i) The writ petitions are allowed in part, subject to the assessees/petitioners filing applications for compounding within 6 weeks from the date of receipt of a copy of this order.
(ii) The respondents shall pass appropriate orders accepting or declining to accept such compounding within a reasonable time thereafter.
(iii) If the petitioners do not avail of this benefit within 6 weeks, the prosecution against them shall continue.
(iv) If the respondents do not accept compounding of the offence, the petitioners may pursue their legal remedies.
(v) All contentions of both parties are kept open.

This comprehensive judgment addresses the procedural and substantive aspects of the case, ensuring that the petitioners are given a fair opportunity to compound the offence while maintaining the integrity of the legal process.

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