2022 (7) TMI 557 - HC - Income Tax

Prosecution proceedings - Criminal Complaint u/s 276C(2) read with 278E - complaint was filed on the premises that for the Assessment Year 2014-2015, the accused had failed to disclose the income and the same came to the notice of the Department through search and seizure conducted - A short point raised in the quash petition is that, pending prosecution initiated based on the order passed by the Appellate Authority, the accused/ petitioner herein preferred an appeal before the Tribunal and Tribunal has set aside the order of the Appellate Authority - HELD THAT - To ascertain whether the order of the Tribunal dated 31.03.2022 will tantamount to set aside the order of the Assessing Authority demand of Rs,50,21,160/- will also get set aside, the learned counsel for the Department answered in negative. So, it is very clear that in the order of the Tribunal, the petitioner herein could not be liable to pay the demand and the penalty made based on the order passed by the Appellate authority dated 20.11.2017 but status quo ante will be restored. In any event, in view of the subsequent development, the criminal prosecution laid based on the alleged failure to comply the demand notice issued on 22.03.2018 will not survive. Hence, for that reason, the criminal original petition is allowed with liberty to the Department to proceed against the assessee, if there is any violation of failure on her part to comply the demand which she is liable to pay for the Assessment Year 2014-2015 and thereafter. This observation is subject to the right reserved by the Department to prefer further appeal against the order of the Tribunal dated 31.03.2022. The connected miscellaneous petition is closed.

Summary

Issues:
Quashing of private complaint under Section 276C(2) read with 278E of the Income Tax Act, 1961 based on failure to disclose income for Assessment Year 2014-2015; Appeal before Tribunal setting aside order of Appellate Authority; Impact of Tribunal's order on prosecution against alleged willful default.

Analysis:

1. The petition was filed to quash a private complaint lodged by the Deputy Commissioner of Income Tax under Section 276C(2) read with 278E of the Income Tax Act, 1961. The complaint alleged that the accused failed to disclose income for the Assessment Year 2014-2015, leading to penalty proceedings. The accused filed returns late, resulting in a demand notice for unexplained money and penalty. Despite appeals and requests for stay, the demand was not paid, and the penalty amount was increased by the Appellate Authority.

2. The accused then appealed to the Tribunal, which set aside the Appellate Authority's order. The petitioner argued that the prosecution should be quashed based on the Tribunal's decision. The Department contended that the Tribunal's order did not absolve the accused of the demand and penalty but restored the situation to its original state. Consequently, the criminal prosecution based on the alleged failure to comply with the demand notice issued earlier would not stand in light of the Tribunal's decision.

3. The Court allowed the petition to quash the prosecution, granting the Department the liberty to proceed against the assessee if there are future violations or failures to comply with the demand. The decision was subject to the Department's right to appeal the Tribunal's order. The judgment emphasized that the prosecution did not survive due to the developments following the Tribunal's decision, but left room for further action by the Department in case of future non-compliance with tax liabilities.

In conclusion, the judgment focused on the impact of the Tribunal's order on the prosecution initiated against the accused for alleged tax defaults, ultimately allowing the petition to quash the prosecution while providing the Department with the opportunity to pursue further action if necessary.