2010 (8) TMI 48 - HC - Income Tax

Offences and Prosecution - Penalty imposed on the assessee for evading of tax. On petition for direction quashing the prosecution on the ground that penalty levied under section 271(1)(c) had been set aside by the Tribunal and in the alternative seeking stay of the trial till completion of proceedings under section 273A(4). Held that - that de hors the orders setting aside the penalty proceedings by the Appellate Tribunal, the criminal proceedings go on. Petition dismissed.

Issues Involved:
1. Direction to await orders on the compounding application.
2. Quashment of criminal proceedings.
3. Relationship between penalty proceedings and criminal prosecution.
4. Applicability of Tribunal's decision on criminal prosecution.

Detailed Analysis:

1. Direction to Await Orders on the Compounding Application:
The petitioner sought a direction to the Additional Chief Metropolitan Magistrate to await the orders on the compounding application filed by him. The court noted that the prayer runs contrary to the case projected by the petitioner. It was emphasized that only if orders are passed under section 273A(4) of the Income-tax Act, and by virtue of the explanation to the said section, the criminal prosecution cannot continue. In the absence of any such orders, the criminal prosecution can proceed. Thus, the petition was dismissed as it lacked merit.

2. Quashment of Criminal Proceedings:
The petitioner also sought the quashment of the criminal proceedings in E.O.C.C. No. 151 of 1985. The court examined the facts and the legal precedents. It was argued that since the penalties levied by the Assessing Officer were set aside by the Tribunal, the criminal prosecution should also be quashed. However, the court highlighted that penalty proceedings and criminal prosecution are independent and can proceed simultaneously. The court relied on the decision in P. Jayappan v. S.K. Perumal which stated that pendency of reassessment proceedings does not bar criminal prosecution. The court also noted that the trial had already commenced and was in the stage of arguments, thus it was not inclined to interfere.

3. Relationship Between Penalty Proceedings and Criminal Prosecution:
The petitioner argued that the Tribunal's decision setting aside the penalties should automatically quash the criminal prosecution, relying on K.C. Builders v. Asst. CIT. However, the court noted that this decision was doubted in Standard Chartered Bank v. Directorate of Enforcement, where it was held that adjudication and prosecution are distinct and can proceed independently. The court concluded that the findings of the Tribunal have no binding effect on the criminal court proceedings.

4. Applicability of Tribunal's Decision on Criminal Prosecution:
The court discussed the applicability of the Tribunal's decision on criminal prosecution. It noted that the decision in K.C. Builders was rendered by a two-judge bench and was doubted by a three-judge bench in Standard Chartered Bank, which held that prosecution can proceed independently of the adjudication process. The court also referred to Asst. CIT v. N.K. Mohamed Ali, where it was held that Tribunal findings do not bind criminal court proceedings. Thus, the court held that the criminal prosecution could continue despite the Tribunal setting aside the penalties.

Conclusion:
The court dismissed both petitions. It held that the criminal prosecution could proceed independently of the penalty proceedings and the Tribunal's decision. The trial in E.O.C.C. No. 151 of 1985 was allowed to continue to its logical conclusion.

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