2021 (9) TMI 656 - HC - Income Tax

Criminal prosecution for non payment of demanded amount - Revenue initiated penalty proceedings under Section 271(1)(C) - During the pendency ofTax Case Appeal Principal Commissioner of Income Tax, issued a Show Cause Notice under Section 276(C)(1) and 276 C (2) of the Income Tax Act, demanding a sum - HELD THAT - During the pendency of the appeal, the respondent has issued show cause Notice dated 27.06.2017. For which, the petitioner has also sent his reply on the same day and agreed to pay the penalty amount and also paid the amount of ₹ 29,36,625/- and the receipt for payment of the said amount has been annexed in the typed set filed along with this petition - respondent, without taking note of the payment of the above said amount and pendency of the appeal proceedings before this High Court, has erroneously launched criminal prosecution against the petitioner for wilful commission of concealment of income to avoid payment of tax, under Section 276(c)(1) As pointed out that the petitioner has paid the penalty amount, immediately after receipt of the show cause notice, as early as on 27.07.2017, however, the complaint has been preferred at a much later point of time during October 2017 and further there is no allegation whatsoever to prove that the petitioner has wilfully evaded from payment of tax and penalty and hence the complaint lodged by the respondent is liable to be set aside. Criminal Original Petitions are allowed and quashed the proceedings pending on the file of the Additional Chief Metropolitan Magistrate Court- E.O.-II, Egmore, Chennai.

Summary

Issues:
1. Challenge to the levy of penalty and show cause notice issued under the Income Tax Act.
2. Allegations of wilful evasion of tax payments and initiation of criminal prosecution.
3. Validity of the criminal proceedings in E.O.C.C.Nos.613 and 614 of 2017.

Analysis:

Issue 1: Challenge to the levy of penalty and show cause notice
The petitioner, a limited company involved in the manufacturing of paper, had a dispute regarding the disclosure of income from the sale of agricultural land. The Assessing Officer initiated assessment proceedings under Section 143(3) of the Income Tax Act due to alleged suppression of income. Subsequently, penalty proceedings were initiated under Section 271(1)(c) of the Act. Despite the petitioner's appeal before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, the penalty amount remained disputed. The petitioner, during the pendency of the appeal, agreed to pay the penalty amount and deposited the sum. However, the respondent proceeded with criminal prosecution, leading to the filing of petitions to challenge the same.

Issue 2: Allegations of wilful evasion of tax payments and initiation of criminal prosecution
The respondent argued that the petitioner's failure to pay the demanded amount led to the issuance of a show cause notice under the Income Tax Act. The respondent contended that the petitioner's grievances were factual and should be addressed before the Trial Court where the criminal prosecution was pending. The respondent maintained that the petitioner's approach to the High Court without cooperating with the investigation was unjustifiable. The respondent justified the initiation of criminal proceedings based on the alleged evasion of tax payments by the petitioner.

Issue 3: Validity of the criminal proceedings
The Court noted that the petitioner had paid the penalty amount promptly upon receiving the show cause notice, yet the criminal complaint was filed at a later date without consideration of the payment made. The Court found no evidence of wilful evasion of tax by the petitioner. Consequently, the Court quashed the criminal proceedings in E.O.C.C.Nos.613 and 614 of 2017 pending before the Additional Chief Metropolitan Magistrate Court. The Court emphasized that the complaint lodged by the respondent was not sustainable given the circumstances of the case, leading to the allowance of the petitions and closure of connected miscellaneous petitions.