2015 (11) TMI 933 - HC - Income Tax

Prosecution proceedings - Concealment of income or postponement of the tax due - penalties levied under Section 271(1)(c) - assessee willfully evaded the payment of the tax as per the provisions of the Act and committed offence punishable under Section 276(C)(2) of the Act, with deliberate default in not clearing tax dues that too, even after received of notice under Section 221(1) of the Act - petition filed under Section 482 of the Code of Criminal Procedure by the Petitioner-Accused to quash the proceedings in C.C.No.103 of 2014 on the file of the learned Special Judge for Economic offences, Hyderabad, taken cognizance for the offences punishable under Sections under Section 276(c) (2) of the Income Tax Act, 1961 - Held that - It is ultimately held that the penalty proceedings and prosecution proceedings are clearly independent and that the result of proceedings does not bind and Criminal Court has to independently judge on the evidence placed before it. It further held that it is the settled law that levy of penalties and prosecution under Section 276C are simultaneous and once penalties are cancelled on that ground there is no concealment, the prosecution for concealment is liable to be quashed automatically and thereby held the prosecution will not survive and is liable to be quashed thereby the High Court held committed an error. Here, it is not the case of the accused/petitioner that penalty proceedings are quashed or set aside and thereby automatically the prosecution is liable to be quashed. It is not even his case that even there is any finding by any Tribunal of no willful default on the part of him despite presumption against him with a burden on him under reverse onus clause to say consequently that finding is binding on the criminal Court with the analogy of law laid down in R.K. Builders (2004 (1) TMI 7 - SUPREME Court)to quash the prosecution thereby the decision relied has no application for the factual matrix referred (supra). In fact, it is though not mentioned in the original quash petition about the trial Court s order, after hearing both sides as a private warrant procedure framed charges against the accused and the accused was examined, in the course of hearing it is filed as additional material. On perusal of the charges framed by the trial Court also it nowhere requires any interference from what is referred supra. Having regard to the above there are no grounds to quash the prosecution proceedings in C.C.No.103 of 2014 on the file of the learned Special Judge for Economic offences, Hyderabad which reached stage for commencement of trial before the learned Special Judge. But for to say the observation herein no way much less, the charges framed by the trial Court, influence the trial Judge in deciding the criminal cases on its own merits from the ultimate appreciation of the evidence oral and documentary on record.

Issues Involved:
1. Quashing of proceedings under Section 482 of the CrPC.
2. Validity of prosecution under Section 276(C)(2) of the Income Tax Act.
3. Requirement of notice under Section 156 of the Income Tax Act.
4. Availability of alternative remedies under Sections 226 and 227 of the Income Tax Act.
5. Presumption of culpable mental status under Section 278(e) of the Income Tax Act.
6. Applicability of the Supreme Court's decision in K.C. Builders v. Assistant Commissioner of Income.

Detailed Analysis:

1. Quashing of Proceedings under Section 482 of the CrPC:
The petitioner sought to quash the proceedings in C.C.No.103 of 2014, arguing that there was no deliberate or intentional concealment of income or postponement of tax payment. The court, however, found that the prosecution was initiated due to the petitioner's failure to pay the admitted tax amount of Rs. 58,15,840/-, despite receiving substantial amounts for contract works done. The court concluded that the grounds for quashing the proceedings were not sufficient.

2. Validity of Prosecution under Section 276(C)(2) of the Income Tax Act:
The court examined whether the prosecution under Section 276(C)(2) was valid. The petitioner had filed an E-return declaring an income of Rs. 2,10,26,628/- for the assessment year 2012-13, with a tax payable of Rs. 68,28,133/-. Despite receiving Rs. 14.25 crores for contract work, the petitioner paid only Rs. 2 lakhs towards the tax. The court noted that the petitioner failed to pay the tax due for more than a year without valid reasons, constituting willful evasion of tax payment, justifying the prosecution.

3. Requirement of Notice under Section 156 of the Income Tax Act:
The petitioner contended that no notice of demand under Section 156 was issued. The court clarified that the intimation under Section 143(1) of the Act is deemed to be a notice of demand under Section 156. Therefore, the contention that a separate notice under Section 156 was required before prosecution was dismissed.

4. Availability of Alternative Remedies under Sections 226 and 227 of the Income Tax Act:
The petitioner argued that alternative remedies for tax recovery under Sections 226 and 227 were available, making the prosecution unsustainable. The court held that the availability of alternative recovery methods does not preclude prosecution under Section 276(C)(2). The prosecution is for willful evasion of tax, independent of the recovery mechanisms.

5. Presumption of Culpable Mental Status under Section 278(e) of the Income Tax Act:
The court highlighted that under Section 278(e), there is a presumption of culpable mental status on the part of the accused in prosecutions under the Income Tax Act. The burden is on the accused to rebut this presumption by proving the absence of willful intent. The court found that the petitioner failed to provide sufficient evidence to rebut this presumption.

6. Applicability of the Supreme Court's Decision in K.C. Builders v. Assistant Commissioner of Income:
The petitioner relied on the Supreme Court's decision in K.C. Builders, where it was held that if penalties are canceled by the Income Tax Appellate Tribunal, prosecution for concealment of income cannot be sustained. However, the court noted that in the present case, there was no cancellation of penalties or findings by any tribunal regarding the absence of willful default. Therefore, the decision in K.C. Builders was not applicable to the petitioner's case.

Conclusion:
The court dismissed the criminal petition, finding no grounds to quash the prosecution proceedings. The trial was allowed to proceed, with the court emphasizing that the observations made would not influence the trial judge's independent assessment of the evidence.

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