PROSECUTION AGAINST AN ASSESSEE UNDER INCOME TAX ACT, 1961 WHEN THE ASSESSMENTS ARE QUASHED ON LIMITATION

[Mr. M. GOVINDARAJAN]

In S.J. SURYA VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II (4) , CHENNAI – 34 [2022 (6) TMI 88 - MADRAS HIGH COURT], the petitioner in this case is a cine actor and also cine Director.  For the assessment year 2002 – 2003 the petitioner has to file income tax return on or before 30.07.2002.  He did not file the income tax return within the due date.  This is in contravention of Section 139(1) and   it is an offence punishable under Section 276 CC of Income Tax Act, 1961.

The survey operations under Section 133 A were conducted on 04.09.2003 and a search was conducted on 26.10.2005.  Unaccounted receipt of money by the petitioner towards remuneration for directing movies is found during the search.  A notice dated 30.03.2004 under section 148 was issued to the petitioner with directions  to prepare a true and correct return of total income including the undisclosed income assessable for the assessment year 2002-2003 within 30 days from the date of service of the notice. The said notice was duly acknowledged by the petitioner on 05.04.2004.  He sought time up to 15.06.2004 for complying with the notice.  But he did not file return even after 15.06.2004.  Therefore a show cause notice dated 22.07.2004 was issued to him.

The petitioner filed the return on 15.09.2004.  He indicated that his total income towards direction of a film amounts to Rs.50 lakhs and he claimed Rs.10 lakhs as deduction.  Assessment was completed on 30.03.2005.  The total amount of his income came to be assessed as Rs.1,68,38,140/- Apart from these a sum of Rs.30,00,000/- was added as unexplained deposit in his bank account in Dena Bank, T. Nagar Branch. Gross tax and interest demand worked out to Rs.85,82,780/-. After giving credit to payments made of Rs.13,00,000/-, net demand was raised at Rs.72,82,780/-.

The petitioner filed appeal before the Commissioner of Income Tax against the demand.  Simultaneously penalty proceedings were initiated against the petitioner under section 271(1)(c) of the Act.  The petitioner filed petition before Joint Commissioner to stay the collection of demand till the appeal is to be disposed by Commissioner (Appeals).  The said request was rejected by Joint Commissioner.  The petitioner requested the Department to grant time to make the payment.  The Commissioner of Income Tax allowed him to make the payment in installments.  The same has not been complied with.

Notice was issued to Prasad Film Lab and Gemini Colour Lab to realize the garnishee amounts.  Agricultural lands and the flats belonging petitioner were placed under provisional attachment under Section 281 B of the Income Tax Act.  In the meantime the original assessment order was confirmed by Commissioner (Appeals). 

A notice under Section 153 (A) of Income Tax Act, dated 07.07.2006 was issued to the petitioner to prepare a true and correct return of total income including undisclosed income for the assessment year 2002-2003, within 45 days from the date of service of the notice.  The petitioner did not do so within the time stipulated.  Therefore again a show cause notice dated 26.10.2006 was issued to the petitioner to show cause why the prosecution under Section 276 CC of the Income Tax Act, 1961 should not be initiated. The petitioner did not reply to the notice.   Assessment under Section 153 A r/w. Section 144 was completed on 24.09.2008 on a total income of Rs.2,00,56,592/-    Based on the materials seized a sum of Rs.1,70,56,592/-representing the money received for the remuneration of the film ''Nani'' and another sum of Rs.30,00,000/- for the remuneration towards the film ''New'' were added. Total gross demand was determined at Rs.1,50,02,522/-. After giving credit to self assessment tax paid at Rs.10,00,000/-, net demand payable was determined at Rs.1,50,02,522/-.

The Department initiated penalty proceedings.  The appeal filed against the order was also dismissed.  Garnishee notices were issued to various banks, individuals and companies.  Since the amount has not been paid the outstanding demands were certified to the tax recovery officer.   The tax recovery officer issued notices in ITCP-1 to the petitioner on 11.06.2014.  The Petitioner filed stay petition before Income Tax Appellate Tribunal, Chennai and the stay petition was dismissed.  The petitioner thus committed offences under sections 276C (1), 276C(2), 276CC and 277.

The Department filed the following criminal complaints against the petitioner-

• Complaint No. EOCC No. 102 of 2015 – Non filing of income tax return for the assessment year 2003-2004.  Did not pay the advance tax and concealed true and correct income by not filing the return of income on or before the statutory due date. 

• Contravention of sections 139(1), 148 and 153A of the Act punishable under Section 276CC of the Act;
• Failure to pay advance tax – punishable under section 276C (2);
• deliberately concealed his true and correct income by not filing return of income and not paying advance tax, demand tax – punishable under Section 276C(1);
• Furnishing false statement – punishable under section 277 of the Act.

• Complaint No. EOCC No. 103 of 2015 – non filing of income tax return for the assessment year 2004 – 05.  Did not pay the advance tax and concealed true and correct income by not filing the return of income on or before the statutory due date. 

• Contravention of sections 139(1), 148 and 153A of the Act punishable under Section 276CC of the Act;
• Failure to pay advance tax – punishable under section 276C (2);
• deliberately concealed his true and correct income by not filing return of income and not paying advance tax, demand tax – punishable under Section 276C(1);
• Furnishing false statement – punishable under section 277 of the Act.

• Complaint No. EOCC No. 104 of 2015 – Non filing of return for the assessment year 2005 – 2006.   Did not pay the advance tax and concealed true and correct income by not filing the return of income on or before the statutory due date. 

• Contravention of sections 139(1), 148 and 153A of the Act punishable under Section 276CC of the Act;
• Failure to pay advance tax – punishable under section 276C (2);
• deliberately concealed his true and correct income by not filing return of income and not paying advance tax, demand tax – punishable under Section 276C(1);
• Furnishing false statement – punishable under section 277 of the Act.

• Complaint No. EOCC No. 105 of 2015 - Non filing of return for the assessment year 2006 – 2007.   Did not pay the advance tax and concealed true and correct income by not filing the return of income on or before the statutory due date.  

• Contravention of sections 139(1), 148 and 153A of the Act punishable under Section 276CC of the Act;
• Failure to pay advance tax – punishable under section 276C (2);
• deliberately concealed his true and correct income by not filing return of income and not paying advance tax, demand tax – punishable under Section 276C(1);
• Furnishing false statement – punishable under section 277 of the Act.

• Complaint No. EOCC No. 106 of 2015  - Non filing of return for the assessment year 2009 – 2010.   Did not pay the advance tax and concealed true and correct income by not filing the return of income on or before the statutory due date. 

• Contravention of sections 139(1), 148 and 153A of the Act punishable under Section 276CC of the Act;
• Failure to pay advance tax – punishable under section 276C (2);
• deliberately concealed his true and correct income by not filing return of income and not paying advance tax, demand tax – punishable under Section 276C(1);
• Furnishing false statement – punishable under section 277 of the Act.

The petitioner filed a writ petition before High Court, Madras challenging the criminal cases filed by the Department against the petitioner.  The petitioner submitted the following grounds before the High Court-

• the complaint is pre-mature, when the proceedings before the department are yet to conclude and reach finality;
• the assessment order passed by the Assessing Officer, confirmed by the CIT (A) has been set aside by the Income Tax Appellate Tribunal declaring the Assessment orders as null and void;
• the Income Tax Appellate Tribunal makes it clear that the petitioner is not liable to pay any tax penalty or interest that could be chargeable or imposable under the Income Tax Act by the department.
• when that be the case, and when there is no tax, penalty or interest chargeable or imposable under the Act, prosecution under Section 276 C (1) of the Act, cannot be sustained;
• when there is no tax, penalty or interest payable by the petitioner, the allegation of attempting to evade payment of such tax, penalty or interest under Section 276 C (2) of the Act, cannot be sustained;
• no prosecution under Section 276 CC of the Act, could be initiated for non filing income tax return when the tax that could have become payable is less than Rs.3000/-. In this case, petitioner would not be liable to be pay even a rupee and therefore, prosecution under Section 276 CC cannot be maintained;
• Filing of false statement of verification cannot be sustained in this case as the petitioner had not filed any return of income or has made a statement which could be called as false. Thus, continuation of the proceedings against the petitioner would only be an abuse process of law.

Therefore, the petitioner prayed for quashing the proceedings in E.O.C.C.Nos.101, 102, 103, 104, 105 & 106 of 2015.

The Department submitted the following before the High Court-

• all these petitions are not maintainable and these petitions are filed abusing process of Court;
• these complaints have been filed as an offshoot of survey and search proceedings;
• these petitions have been filed mainly on the reason that Income Tax Appellate Tribunal have held assessments are null and void;
• the order was passed solely on technical ground that the assessments were time barred;
• when the order was not passed on merits or grounds raised in the criminal complaint, the quashment of the proceedings cannot be prayed;
•  the order of assessment by the Appellate authority, will not be a bar for criminal prosecution, especially when no finding was given by the Appellate Authority on the merits of the case;
• when the ingredients of offence are clearly made out in the complaint to establish that the accused has committed the offence, the complaint cannot be quashed.

The High Court considered the submissions made by the parties to the petition.  The High Court observed that standard of proof in a criminal case is much higher than that of the adjudication proceeding.   the determination of facts in the adjudication proceeding cannot be said to be irrelevant in the criminal case.  The finding recorded in the adjudication proceeding is not binding on the criminal proceeding as both the cases have to be decided on the basis of the evidence therein. There is neither any statutory provision nor any legal principle that the findings recorded in one proceeding may be treated as final or binding in the other, as both the cases have to be decided on the basis of the evidence adduced therein.

The High Court relied on the Supreme Court judgment in  the case of GL DIDWANIA AND ANOTHER VERSUS INCOME-TAX OFFICER AND ANOTHER [1993 (11) TMI 3 - SUPREME COURT] in which the Supreme Court held as below-

• Adjudication proceeding and criminal prosecution can be launched simultaneously;
• Decision in adjudication proceeding is not necessary before initiating criminal prosecution;
• Adjudication proceeding and criminal proceeding are independent in nature to each other;
• The finding against the person facing prosecution in the adjudication proceeding is not binding on the proceeding for criminal prosecution;
• Adjudication proceeding by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20 (2) of the Constitution or Section 300 of the Code of Criminal Procedure;
• The finding in the adjudication proceeding in favor of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceeding is on technical ground and not on merit, prosecution may continue; and
• In case of exoneration, however, on merits where allegation is found to be not sustainable at all and person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue underlying principle being the higher standard of proof in criminal cases.

The High Court further relied on judgment in P. JAYAPPAN VERSUS SK. PERUMAL, FIRST INCOME-TAX OFFICER, TUTICORN - 1984 (6) TMI 50 - MADRAS HIGH COURT in which it was held that pendency of re-assessment proceedings cannot act as bar to the institution of criminal proceeding and it cannot in such circumstances amount to abuse of process of Court.  If the adjudication proceedings were disposed on technical ground and not on merits, prosecution can continue and assessee/accused cannot take advantage of the order passed in adjudication proceedings.

In the present case the High Court observed that the main ground taken before the Income Tax Appellate Tribunal was that the assessment order was barred by limitation.  It is seen from the complaint allegation that despite, giving notice, statutory notice as detailed in the complaint, petitioner has not filed return, paid advance tax and tax demanded, suppressed the real and true income by not filing the return in time. These issues have to be necessarily tried before the Court.  The assessment order relating to the assessment year 2009-2010 was not challenged before the Income Tax Appellate Tribunal. Therefore, petitioner cannot seek aid of order passed by the Income Tax Appellate Tribunal in I.T.A.Nos.1858 to 1862/Mds/2014. In this case also there is allegation of non filing of return of income for the assessment year 2009- 2010, concealment of true and correct income by not filing return of income, nonpayment of income despite issuance of notice. These violations are liable to be prosecuted for the offences under Section 276 C (1), 276 C (2), 276 CC and 277 of the Income Tax Act, 1961.

The High Court is of the considered view that respondent/complainant made out prima-facie case to proceed against the petitioner for the offences alleged in the complaint. Section 278 (e) of the Income Tax Act, 1961, empowers the Court to presume culpable mental state of the accused, unless, the accused shows that he had no such mental state with respect to the act charged as an offence in the prosecution. In this view of the matter, this Court finds that petitioner shall necessarily face the trial.