2024 (9) TMI 792 - HC - Income Tax

Offence u/s 276(C) (2) and 277 - Allegation of willful tax evasion and non-payment of admitted tax - compounding application - HELD THAT - The court has gone through the materials available on record and finds that admittedly the petitioner has submitted the income tax return pointing out the liability for the year 2011-12, however along with the return the tax liability was not deposited, which was deposited later on. Thus, it is crystal clear that the tax amount has already been deposited, however, after certain delay and that was deposited with interest in light of Section 240(A) of the Income Tax Act. Admittedly, there is no proceeding pending with regard to recovery of tax or penalty against the petitioner. The willful demand of payment of tax was the subject matter in the case of Gopal Ji Shaw 1988 (3) TMI 41 - CALCUTTA HIGH COURT which was considered by this court in para-7 of the judgment relied by the learned counsel appearing for the petitioner and the same was also considered which is already quoted hereinabove and other judgments are also considered in the said judgment and thereafter the proceeding was quashed. Admittedly, in the case in hand, there was no penalty provision against the petitioner and in view of that it will be presumed that there is no concealment and quashing of prosecution u/s 276(C) (1) is automatic. As such, the petitioner cannot be allowed to suffer and to face criminal trial and the same cannot sustain in the eyes of law. There is no doubt that penalty proceeding and prosecution can go simultaneously in the facts and circumstances of the cases, however, in the case in hand, the penalty proceeding is not there and in view of the above judgments in the case of Pralay Pal 2023 (9) TMI 115 - JHARKHAND HIGH COURT the case of the petitioner is fit to be allowed under Article 226 of the Constitution of India. Accordingly, the entire criminal proceeding including the cognizance order dated 02.11.2017, by which, cognizance has been taken for the offence u/s 276(C) (2) and 277 against the petitioner, in connection with Complaint Case pending in the court of learned Special Judge, Economic Offences, Jamshedpur, are hereby, quashed.

Issues Involved:
1. Quashing of the entire criminal proceeding including the cognizance order.
2. Allegation of willful tax evasion and non-payment of admitted tax.
3. Validity of the prosecution under Sections 276(C)(2) and 277 of the Income Tax Act.
4. Consideration of replies filed by the petitioner.
5. Rejection of the compounding application by the Principal Commissioner of Income Tax.
6. Applicability of previous judgments and legal precedents.
7. Existence of penalty proceedings and their impact on criminal prosecution.

Issue-wise Detailed Analysis:

1. Quashing of the entire criminal proceeding including the cognizance order:
The petitioner sought to quash the entire criminal proceeding, including the cognizance order dated 02.11.2017, under Sections 276(C)(2) and 277 of the Income Tax Act, 1961, in connection with Complaint Case No. 544 of 2017. The court found that the tax amount had been deposited, albeit with a delay, and there was no pending proceeding for recovery of tax or penalty against the petitioner. Consequently, the court quashed the criminal proceedings, stating that the petitioner cannot be allowed to suffer and face a criminal trial when no penalty provision was applicable.

2. Allegation of willful tax evasion and non-payment of admitted tax:
The prosecution alleged that the petitioner, despite filing returns for the Assessment Year 2011-12, did not pay the declared tax liability, thereby attempting to evade tax. The petitioner argued that the tax was eventually paid, albeit after receiving a demand letter. The court noted that the tax was deposited with interest, indicating no willful evasion.

3. Validity of the prosecution under Sections 276(C)(2) and 277 of the Income Tax Act:
The court examined whether the prosecution under Sections 276(C)(2) and 277 was valid, considering that the tax had been paid, albeit late. The court referred to previous judgments to determine that the element of mens rea (guilty mind) is essential for such prosecutions. Since the petitioner had paid the tax with interest, the court concluded that there was no willful default, thus invalidating the prosecution.

4. Consideration of replies filed by the petitioner:
The petitioner contended that the replies to the show cause notices were not considered before sanctioning the prosecution. The court observed that the sanction was accorded without adequately considering the petitioner's replies, which contributed to the decision to quash the proceedings.

5. Rejection of the compounding application by the Principal Commissioner of Income Tax:
The petitioner's application for compounding the offences was rejected by the Principal Commissioner on the grounds of delayed tax payment. The petitioner argued that this rejection ignored the Ministry of Finance's guidelines. The court did not find this rejection to be a valid ground for continuing the criminal proceedings, especially since the tax was eventually paid.

6. Applicability of previous judgments and legal precedents:
The petitioner relied on the judgment in the case of Pralay Pal v. State of Jharkhand, which emphasized that criminal prosecution should not be initiated for intricate questions of tax law interpretation unless there is a clear willful default. The court also referred to the Supreme Court's judgment in Gujarat Travancore Agency v. Commissioner of Income Tax, which distinguished between civil obligations and criminal penalties, highlighting the necessity of mens rea for criminal prosecution.

7. Existence of penalty proceedings and their impact on criminal prosecution:
The court noted that there were no penalty proceedings against the petitioner, implying no concealment of income. It was emphasized that penalty proceedings and criminal prosecution can occur simultaneously, but in this case, the absence of penalty proceedings indicated that criminal prosecution was unwarranted.

Conclusion:
The High Court quashed the entire criminal proceeding, including the cognizance order dated 02.11.2017, against the petitioner under Sections 276(C)(2) and 277 of the Income Tax Act, 1961, in connection with Complaint Case No. 544 of 2017. The petition was allowed and disposed of, as the court found no willful default or concealment of income, and the tax liability had been settled with interest.

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