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2022 (9) TMI 195 - HC - Income TaxCognizance of offence against the petitioner u/s 276CC - non filing of ITR - assessment u/s 153A - requirement of mens rea - criminal prosecution for an offence under a special statute - proof of willful failure on the part of the defaulter and the nature of penalty required - petitioner submits that a criminal prosecution for an offence under a special statute must not be initiated as a matter of course where the prosecution would involve intricate questions of interpretation of the Income Tax Act - whether once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276CC is automatic and the petitioner cannot be made to suffer and face the rigorous of criminal trial when the same cannot be sustained in the eyes of law HELD THAT - It is an admitted fact that the petitioner's premises was searched on a particular date subsequent thereto, certain documents have been seized. The petitioner has not filed return on time. It is also an admitted fact that the petitioner has filed the return along with interest, which has been accepted by the authority concerned. The subsequent protective assessment has been laid upon the petitioner, which was the subject matter before the first appellate authority, which has exonerated entire further assessment of the petitioner vide order dated 03.07.2019, which has been brought on record by way of filing supplementary affidavit. This is a case arising out of the Special Act statute. Admittedly, no penalty proceeding has been initiated against the petitioner. There is provision of initiation of penalty proceeding. However, the Department has not chosen to invoke Section 271(1)(A) under the statute. When the amount in question along with the interest has already been paid, no sentence can be imposed under that provision unless the element of mens rea is established and the intention of the Legislature is that the penalty should serve as a deterrent. In the Act, it has been provided how to proceed if a particular assessee is not filing the return on time, which suggests that it is civil obligation. As held in Autofil case 1990 (4) TMI 50 - ANDHRA PRADESH HIGH COURT that the willful failure occurring in Section 276CC of the Income Tax Act held that willfulness certainly brings in the element of guilt and thus the requirement of mens rea will come into force. In the case in hand, the first appellate authority has set aside the further assessment and it is an admitted fact as to whether the criminal proceedings can be sustained or not. In the similar circumstance, in the case of G.L. Didwania 1993 (11) TMI 3 - SUPREME COURT has held that if that is the position then the Court is unable to see as to how criminal proceedings can be sustained. The same view was again taken in the case of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT The argument of Ms. Amrita Sinha, learned counsel for the opposite parties about willful delay in filing the return has been considered by the Calcutta High Court in the case of Gopal Ji Shaw (supra). Identical is the situation here as the authority concerned has accepted the return along with interest filed by the petitioner and subsequently the first appellate authority has set aside the further assessment. Thus on reasons and analysis, to allow the criminal proceedings to continue will amount to abuse of process of law. Accordingly, the entire criminal proceedings including the order taking cognizance passed by the learned Special Judge, Economic Offence, Dhanbad in connection with Complaint Case pending in the court of the learned Special Judge, Economic Offence, Dhanbad is, hereby, quashed.
Issues Involved:
1. Quashing of criminal proceedings under Section 276CC of the Income Tax Act, 1961. 2. Delay in filing income tax returns and its implications. 3. Mens rea and wilful default in tax evasion. 4. Impact of appellate authority's decisions on criminal prosecution. Detailed Analysis: 1. Quashing of Criminal Proceedings under Section 276CC of the Income Tax Act, 1961: The petitioner sought to quash the criminal proceedings and the order taking cognizance dated 18.03.2016 by the Special Judge, Economic Offence, Dhanbad, under Section 276CC of the Income Tax Act, 1961. The complaint alleged that the petitioner failed to file the income tax return for the assessment year 2013-14 within the stipulated time despite receiving a notice under Section 153A. The petitioner ultimately filed the return on 04.02.2016, showing an income of Rs. 81,63,930/- after a delay of 17 months without reasonable cause. 2. Delay in Filing Income Tax Returns and its Implications: The petitioner argued that the delay in filing the return was due to a death in the family and the non-receipt of necessary documents from the Income Tax Department. The petitioner also contended that the entire tax payable as per the return had been paid along with interest, and the additions made by the Assessing Officer were deleted by the Commissioner of Income Tax (Appeal), implying no tax was due. The petitioner claimed that the continuance of prosecution under Section 276CC would be vexatious and an abuse of the court process, citing the case of Gopal Ji Shaw v. Income Tax Officer, Calcutta & others. 3. Mens Rea and Wilful Default in Tax Evasion: The petitioner referenced several judgments to argue that mens rea is an essential ingredient for criminal prosecution under special statutes like the Income Tax Act. The Calcutta High Court in Gopal Ji Shaw held that criminal prosecution should not be initiated without determining the liability of the accused-assessee. The Supreme Court in Gujrat Travancore Agency v. Commissioner of Income-Tax, Kerala emphasized that mens rea must be established for imposing penalties under Section 276CC. Similarly, the Andhra Pradesh High Court in Income-Tax Officer v. Autofil & others noted that wilfulness entails an element of guilt, requiring mens rea. 4. Impact of Appellate Authority's Decisions on Criminal Prosecution: The petitioner argued that since the appellate authority had set aside the further imposition of tax, the criminal prosecution was unsustainable. This argument was supported by the Supreme Court judgments in G.L. Didwania & another v. Income-Tax Officer & another and K.C. Builders & another v. Assistant Commissioner of Income-Tax, which held that once penalties are canceled by the appellate authority, the prosecution cannot be sustained. The Punjab and Haryana High Court in Commissioner of Income-Tax, Patiala-II v. Behari Lal Pyare Lal also supported the view that protective penalties are not permissible under the statute. Court's Conclusion: The court noted that the petitioner had filed the return along with interest, which was accepted by the authority. The first appellate authority had exonerated the petitioner from further assessment. The court held that the prosecution should not proceed without establishing mens rea, especially when the tax and interest had been paid. The court concluded that continuing the criminal proceedings would amount to an abuse of the process of law. Therefore, the entire criminal proceedings, including the order taking cognizance dated 18.03.2016, were quashed. Final Order: The petition was allowed, and the interim order dated 05.12.2016 was vacated.
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