PENDING OF APPELLATE PROCEEDINGS IS NOT A BAR FOR PROSECUTION

[Mr. M. GOVINDARAJAN]

Chapter XXI of the Income Tax Act, 1961 ‘(Act’ for short) provides for imposing penalties on the assessee on various grounds.  Chapter XXII of the Act provides of prosecution for the offences committed by the assessee.  The assessee may file appeal against the penalty imposed on him before the appellate authority.  The Department used to launch criminal proceedings against the assessee, even pending of the appeal before the appellate authority.   In this article the main issue to be discussed is whether the pending of appellant proceedings is a bar for prosecution with reference to decided case laws.

In ‘Commissioner of Income Tax V. Bhupen Champak Lal Dala’ – 2001 (2) TMI 12 - SUPREME Court the Supreme Court held that the prosecution in criminal law and proceedings and, therefore there is no impediment in law for the criminal proceedings to proceed even during the pendency of the proceedings under the Act.   However, a wholesome rule will have to be adopted in matters of this nature where courts have taken the view that when the conclusions arrived at by the appellate authorities have relevance and bearing upon the conclusions to be reached in the case necessarily one authority will have to await the outcome of other authority.  In the present case, there is no claim of quashing of the proceedings.  When ultimately the result to come out of the proceedings before the appellate authorities have a definite bearing on the cases alleged against the respondents, the Supreme Court found that the High Court is justified in granting the interim order calls for interference.

In ‘B.Premanand V. Mohan Koikal’ – 2011 (3) TMI 1590 - SUPREME COURT, the Supreme Court held that pendency of appellate proceedings has no bearing in initiation of prosecution under the income tax act.  The Supreme Court held that if the intention of the legislature to hold up the prosecution till the assessment proceedings are complete by way of appeal or otherwise, the same would have been provided in Section 276CC itself.  Therefore the contention of the appellant that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the appellant had not filed the return as per Section 139(1) of the Act or following the notices issued under Section 142 or 148 does not arise.

In ‘Pradip Burman V. Income Tax Officer’ – 2015 (12) TMI 202 - DELHI HIGH COURT the petitioner sought staying the criminal proceedings against him on the ground that the assessment order he had filed an appeal which is pending for adjudication.  The petitioner submitted the following before the High Court:

• The complaint filed by the Income Tax Department is liable to be quashed on the ground that at the time of filing the criminal complaint, the petitioner had attained the age of 70 years;
• As per the circular dated 07.02.1991 issued by the Central Board of Direct taxes no prosecution can be initiated against a person who is above the age of 70 years which has been confirmed in ‘Arun Kumar Bhatia V. Vijaya Kumar’ – Criminal Revision Petition No. 36/2011, dated 02.11.2011;
• Since the petitioner has challenged the assessment order in appeal and the same is pending for adjudication, the petitioner cannot be prosecuted in the criminal complaint filed by the Department;

The Department on the other hand contended the following:

• The petitioner concealed his income and did not file the income tax return;
• The complaint was filed on the allegation that the petitioner had not disclosed in the return that the petitioner is having foreign bank account;
• The said information was received by the Investigation wing of the department;
• Summons was issued to the petitioner to verify the details of the said foreign bank account in his name and the source of the deposits under Section 131(1A) of the Act;
• The petitioner admitted the availability account with the foreign bank;
• The petitioner agreed to deposit the income tax on account of the balance existed in the foreign bank account in his name, vide his letter dated 03.10.2011;
• Vide letter dated 07.10.2011, the petitioner again offered to deposit income tax on the undisclosed deposits made by him in the foreign bank account;
• The petitioner vide his letter dated 14.10.2011 admitted that the amount lying in the foreign bank were about US$40000 and US$32,12,000 in the financial year 2005- 06 and 2006 – 07;
• The petitioner has not approached this court with clean hands and has tried to mislead the court by stating that the instruction No. 5051 of 1991, dated 07.02.1991 mandates that no prosecution could be initiated against a person who is above the age of 70 years, conveniently leaving out the expression ‘at the time of commission of offence;
• The said instruction does not mandate that no prosecution can be initiated against a person who has attained the age of 70 years;
• At the time of commission of offence the age of the petitioner is 63 only;
• At the time of filing complaint the petitioner had not filed any appeal in respect of the assessment order;
• The petitioner has filed the appeal as an afterthought with a view to thwart the criminal proceedings pending against him;
• Even if the appeal has been filed only to a limited extent of addition in respect of the complaint qua the exchange rate of foreign currency;
• Even pendency of the appeal is no ground for stay of the proceedings if the same has no bearing on the complaint.

The High Court found that at the time of commission of alleged offence, the petitioner had not reached the age of 70 years.  However the complaint in question was filed against him when he attained the age of 70 years.  Thus the High Court held that in ‘Arun Kumar Bhatia’ (supra) was decided on the basis of the circular and not on the merits, the benefit of the same cannot be given to the present petitioner.

The trial court has recorded that both the complaints have been filed under Sections 276C (1), 276D and 277 of the Income Tax Act, 1961.  The grounds of appeal and statements of facts clearly establish that there was no ground in either of the appeal in respect of offence under Section 276D of the Act.  The appeal had been filed challenging the assessment order and consequential outcome of imposition of penalty under Section 271 (1)(C).  The High Court held that the outcome of the appeal filed on behalf of the petitioner will have no bearing on the present complaint at least in respect of offence under Section 276D.  Moreover there is no prayer for quashing of the proceedings by the petitioner in the application.

The High Court, therefore, held that the proceedings once initiated in a warrant trial case, there is no provision under the Code of Criminal Procedure, 1973 except under Section 258 of the Code of Criminal Procedure, where the proceedings of the case can be stayed by the magistrate suo motu or upon the application filed on behalf of the accused, however Section 258 of the Code of Criminal Procedure relates only to summons in trial cases.   Moreover the application filed by the petitioner did not mention under which provision of the Act is filed.  Thus the trial court has rightly dismissed the application filed by the petitioner.  In the present case the petitioner had admitted to have bank accounts outside India only after the investigation by the Income Tax Department.  The said foreign account was undisclosed account and the deposits therein relates to undisclosed income and the same needs to be examined.  The High Court was of the considered opinion that there is no illegality, infirmity or perversity in the order passed by the trial court.  The High Court dismissed the writ petition.

From the above discussions it can be inferred that there is no bar to initiate prosecution when a case is pending before the appellate authority.

Discussions to this article

[prabakar SUNDARARAJ]

very nice presentation