2006 (9) TMI 110 - HC - Income Tax

Revenue appeal against decision of Add. Sessions Judge in which he is keeping the prosecution proceedings before the trial court in abeyance because ITAT has struck down the penalty u/s 271(1)(c) revenue contention that impugned order was not tenable, as penalty proceedings u/s 271(1) (c) & criminal liability u/s 276 C, were independent & the pendency of the proceedings u/s 271(1) (c) could not be taken as a ground to stay the proceedings u/s 276C, is not acceptable revenue appeal dismissed

Summary

Issues:
1. Whether the criminal proceedings under section 276C can be stayed due to the pendency of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961?
2. Whether the order passed by the Additional Sessions Judge to keep the criminal proceedings in abeyance was tenable in law?

Analysis:

Issue 1:
The revision petition by the Income-tax Department challenged the order of the Additional Sessions Judge dated July 5, 2005, which set aside the order of the ACMM and remanded the matter to the trial court due to the pending appeal by the Department. The Department argued that penalty proceedings under section 271(1)(c) and criminal liability under section 276C were independent, and the pendency of one should not stay the other. However, the respondents cited Supreme Court judgments, including CIT v. Bhupen Champak Lal Dalal and K. C. Builders, to support the stance that the criminal proceedings could proceed even during the pendency of the tax proceedings. The Supreme Court emphasized that both proceedings were independent but acknowledged the need for one authority to await the outcome of the other when their conclusions were interrelated. The Court upheld the interim stay on criminal proceedings in certain cases where the appellate authorities' conclusions could impact the criminal case.

Issue 2:
The respondents argued that the order to keep the criminal proceedings in abeyance was justified based on the Supreme Court's decision in K. C. Builders, which established a clear connection between penalty proceedings under section 271(1)(c) and criminal proceedings under section 276C. The Supreme Court's ruling highlighted that the cancellation of penalties automatically led to the quashing of the prosecution under section 276C. As the penalties against the accused had been deleted, the criminal proceedings could not proceed further legally. The Court emphasized that once the penalties were canceled based on the Tribunal's findings, the prosecution became devoid of jurisdiction. Therefore, the order passed by the Additional Sessions Judge to await the decision in the appeal before proceeding with the trial court was in line with the law, as the outcome of the tax proceedings directly impacted the criminal case.

In conclusion, the High Court dismissed the revision petition, upholding the order to keep the criminal proceedings in abeyance until the appeal related to penalty proceedings was decided. The judgment emphasized the interrelation between tax and criminal proceedings, highlighting the need for coherence in legal actions and the impact of one on the other.