2022 (11) TMI 736 - HC - Income Tax

Offence u/s 276C(2) r/w 278B - Wilful attempt to evade tax, etc - whether requisite mens rea was present to infer a willful attempt at evading tax? - HELD THAT - Unless a person with dishonest intention tries to conceal facts and consequently attempts at evading the tax, which he is liable to pay are the requisite ingredients to prosecute person u/s 276C of the Income Tax Act. It is not the case of the Income Tax department that the self assessment tax returns which were filed had an element of concealment on any factual aspects and tried to evade tax, which is liable to paid. There is no dispute regarding the claims made by the petitioners in their income tax returns. Having received the notice, the petitioners have paid additional amoun towards interest and other charges, apart from the assessed tax. It was stated that due to financial difficulties beyond control, the amount could not be paid in time. This is not a case wherein false declaration is made or that the department has found that there is a deliberate attempt to evade tax by suppressing material information. Whether there is willful delay or not are discernible from the facts of the case. Conduct of the petitioners itself would indicate that it was a case of delayed payment of tax or deferred payment. The tax along with interest and penalty was accepted by the department without any reservations. Such delay in the payment will not amount to willful attempt to evade tax. Cogent reasons are given stating that tax could not be paid due to financial difficulties. It cannot be inferred from the facts of the present case that any attempt was deliberately made to evade the tax payment. For the said reasons, the continuation of the proceedings against the petitioners would an abuse of process of the Court. It is a fit case wherein this Court has to exercise its inherent powers under Section 482 of Cr.P.C to quash the proceedings against the petitioners. Accordingly the proceedings against the petitioners on the file of Special Judge for Economic Offences, Hyderabad are hereby quashed and the Criminal Petition is allowed.

Summary

Issues:
1. Quashing of proceedings against petitioners in CC No.37 of 2018 for alleged willful default in tax payment under Section 276C(2) of the Income Tax Act, 1961.

Analysis:
The petition was filed to challenge the proceedings against the petitioners for alleged willful default in tax payment under Section 276C(2) of the Income Tax Act, 1961. The respondent contended that the accused willfully defaulted in paying self-assessment tax, attracting penal provisions. The Income Tax Department issued a show-cause notice, to which the petitioners responded, citing financial difficulties for non-payment initially but later paid the tax along with interest. The department alleged that the accused intended to evade tax by filing returns without payment, leading to the prosecution.

The Senior Counsel for the petitioners argued that there was no intention to evade tax as the amount was eventually paid, relying on precedents where mere filing of returns was not deemed an attempt to evade tax. The Standing Counsel for the Income Tax Department maintained that the intention to evade tax was a trial issue and not for the Court to decide under Section 482 of Cr.P.C. The facts were undisputed, with the petitioner admitting the tax liability but failing to pay initially, rectifying the payment after notice.

The Court examined Section 276C of the Income Tax Act, emphasizing the requirement of mens rea for willful tax evasion. It noted that there was no concealment or deliberate attempt to evade tax, as the petitioners paid the due amount along with additional charges upon receiving notice. The Court found no false declarations or suppression of information to evade tax, attributing the delay in payment to financial difficulties beyond the petitioners' control. The conduct of the petitioners indicated delayed payment rather than willful evasion, leading the Court to quash the proceedings as an abuse of process.

In conclusion, the Court quashed the proceedings against the petitioners in CC No.37 of 2018, citing that the delay in tax payment due to financial constraints did not amount to willful evasion. The Court exercised its inherent powers under Section 482 of Cr.P.C to dismiss the case, emphasizing that the facts did not support a deliberate attempt to evade tax, thus ruling in favor of the petitioners.