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2024 (1) TMI 1007 - HC - Income TaxProsecution Proceedings initiated u/s 276C - Bogus LTCG - guilty mind i.e., mens rea - willful evasion of tax on claims made under the head LTCG/Short Term Capital Loss - allegation of crime invoking Section 200 of the CrPC for offence punishable under Section 276C - infirmities pointed out in the complaints registered independently against all the members of the family and the Companies - defence of the petitioners is that they had sold certain shares of Tuni Textiles and earned long term capital gains amounting to certain amounts all through banking transactions with the stock brokers in relation to the advice the stock brokers had rendered HELD THAT - The stocks vary from JMD Telefilm Industries, Splash Media, Essar India and Alpha. Trading is both by the individuals and by the companies. But, the moment it is brought to the notice of all these petitioners, retracing of steps immediately happen by filing of revised returns. Therefore, it is not a case where ipso facto evasion of tax can be laid against these petitioners. The facts in the case are akin to what is considered by the Apex Court and co-ordinate Benches of this Court in the aforesaid cases SEE RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT , M/S CONFIDENT PROJECTS (INDIA) PRIVATE LIMITED 2021 (2) TMI 75 - KARNATAKA HIGH COURT , M/S. VYALIKAVAL HOUSE BUILDING CO OPERATIVE SOCIETY LTD. 2019 (7) TMI 184 - KARNATAKA HIGH COURT as held mens rea is an element that is to be present in a proceeding under Section 271 of the Act. The mere fact of not accurate tax, not exact tax or erroneous tax would not lead to the proceedings under Section 276 of the Act. These cases would become cases where it would amount to delayed payment of tax as revised returns are filed after the search is conducted on the petitioners. The judgments rendered by the co-ordinate Benches in the cases of M/s VYALIKAVAL HOUSE BUILDING CO- OPERATIVE SOCIETY LIMITED and M/s CONFIDENT PROJECTS (INDIA) PRIVATE LIMITED supra were tossed by the revenue before the Apex Court and both of which have been dismissed. These are admitted facts. Therefore, in the light of all the issues standing answered by plethora of judgments quoted hereinabove, the proceedings instituted against the petitioners cannot but be termed to be an error in law. Order of the learned Magistrate taking cognizance of the offence - All that the order reads is complainant present and perused complaint. Sufficient materials are placed to proceed against the accused for offence punishable u/s 276C(1) of the Act. Accordingly, cognizance is taken and a criminal case is directed to be registered. Whether this would be sufficient in law also need not detain this Court for long or delve deep into the matter. The order of cognizance is trite, that it sets the criminal law in motion and brings the accused under the umbrella of crime. The co-ordinate Bench in the case of M /s. CONFIDENT PROJECTS (INDIA) PVT LTD 2021 (2) TMI 75 - KARNATAKA HIGH COURT as confirmed by SC 2021 (12) TMI 1461 - SUPREME COURT has framed a specific issue on an identical order of taking of cognizance as held at the time of taking Cognisance, there must be a proper application of judicial mind to the materials before the said Court either oral or documentary, as well as any other information that might have been submitted or made available to the Court. The test that is required to be applied by the Court while taking Cognisance is as to whether on the basis of the allegations made in the Complaint or on a police report or on information furnished by a person other than a police officer, is there a case made out for initiation of criminal proceedings. For the above purpose, there is an assessment of the allegations required to be made applying the law to the facts and thereby arriving at a conclusion by a process of reasoning that Cognisance is required to be taken. An order of Cognisance cannot be abridged, formatted or formulaic. The said order has to make out that there is a judicial application of mind. Since without such application, the same may result in the initiation of criminal proceedings when it was not required to be so done. When there are multiple accused, the order is required to disclose the application of mind by the Court taking Cognisance as regards each accused. The Court taking Cognisance ought to have referred to and recorded the reasons why the said Court believes that an offence is made out so as to take Cognisance more so on account of the fact that it is on taking Cognisance that the criminal law is set in motion insofar as accused is concerned and there may be several cases and instances where if the Court taking Cognisance were to apply its mind, the Complaint may not even be considered by the said Court taking Cognisance let alone taking Cognisance and issuance of Summons. Thus the order taking Cognisance is not in compliance with applicable law and therefore is set aside. Proceedings pending before the Special Court (Economic Offences) Bengaluru in these cases stand quashed.
Issues Involved:
1. Willful evasion of tax under Section 276C of the Income Tax Act, 1961. 2. Validity of the order of cognizance by the Magistrate. 3. Necessity of mens rea for prosecution under Section 276C. 4. Whether criminal proceedings should await the conclusion of assessment proceedings. Summary: Issue 1: Willful evasion of tax under Section 276C of the Income Tax Act, 1961 The petitioners, long-time income tax assessees, were accused of willful evasion of tax by making bogus claims under Long Term Capital Gain/Short Term Capital Loss. The Income Tax Department conducted searches under Section 132 of the Act and registered crimes under Section 276C(1). The petitioners filed revised returns post-search, waiving the disputed claims and paying the necessary tax. The prosecution argued that these actions amounted to willful evasion of tax. Issue 2: Validity of the order of cognizance by the Magistrate The order of cognizance merely stated that sufficient materials were placed to proceed against the accused for the offense under Section 276C(1) without detailed reasoning. The court held that such an order must reflect judicial application of mind, as emphasized in the case of M/s. CONFIDENT PROJECTS (INDIA) PVT LTD. The order was found insufficient and thus invalid. Issue 3: Necessity of mens rea for prosecution under Section 276C The court referred to several judgments, including M/s GUJARAT TRAVANCORE AGENCY and PREM DASS, which established that mens rea (guilty mind) is essential for prosecution under Section 276C. The court found that the petitioners' actions, including filing revised returns and paying the tax, did not demonstrate willful evasion but rather an erroneous claim corrected upon advice. Issue 4: Whether criminal proceedings should await the conclusion of assessment proceedings Given the annulment of the proceedings on other grounds, the court did not delve into whether criminal proceedings should await the conclusion of assessment proceedings. Conclusion: The court allowed the criminal petitions, quashing the proceedings before the Special Court (Economic Offences) Bengaluru. The findings were limited to the consideration under Section 482 of Cr.P.C. and would not influence other pending proceedings against the petitioners.
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