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TMI Blog2024 (1) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... vice 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - HON'BLE MR. JUSTICE M. NAGAPRASANNA CRIMINAL PETITION No. 909 OF 2017 with CRIMINAL PETITION No. 910 OF 2017 CRIMINAL PETITION No. 911 OF 2017 CRIMINAL PETITION No. 912 OF 2017 CRIMINAL PETITION No. 913 OF 2017 CRIMINAL PETITION No. 4590 OF 2017 CRIMINAL PETITION No. 4591 OF 2017 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 4595 of 2017 arise out of C.C. Nos. 225 and 326 of 2016 respectively. These petitions are preferred by M/s Bioworth India Private Limited, again owned by the petitioner in Crl.P. No. 909 of 2017. 5. One common stream that runs through in all these petitions is willful evasion of tax on claims made under the head Long Term Capital Gain/Short Term Capital Loss. Against all these petitioners for filing of income tax returns by claiming Long Term Capital Gain/Short Term Capital Loss proceedings are initiated by registering a crime invoking Section 200 of the CrPC for offence punishable under Section 276C of the Act. The infirmities pointed out in the complaints registered independently against all the members of the family and the Companies succinctly stated are as follows: In Criminal Petition Nos. 909 and 4590 of 2017 the allegation is that the petitioner for the financial year 2012-13 had made a bogus long term capital gain of Rs. 1,42,03,110/- from trading in scripts of JMD Telefilm Industries, Splash Media, Essar India, Tuni Textiles Limited and Alpha. In Criminal Petition Nos. 910 and 4591 of 2017 the allegation is that for the financial year 2012-13 the brother of peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would again contend that there is no willful evasion of tax. It is his submission that criminal proceedings ought to have awaited conclusion of assessment proceedings under the Act as evasion itself is yet to be determined in the assessment proceedings. Therefore, criminal prosecution was initiated in a hurry. He would lastly contend that the order of the learned Magistrate in taking cognizance of the offences suffer from blatant non-application of mind and, therefore vitiated and all proceedings taken thereto are to be treated as a nullity in law. In effect, he would seek quashment of proceedings in all these cases. 8. The learned counsel appearing for the respondent/ revenue would vehemently refute the submissions to contend that the petitioners did not file revise returns on their own volition. The search conducted on the premises of the petitioners revealed that they had made certain alleged bogus claims. It is only after that act, the petitioners have come out and filed their revised returns. He would submit that it does amount to willful evasion of tax as, if it would have been undetected, it would pass muster. He would, therefore, submit that the proceedings are appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian Income Tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), then, (A) the [Principal Director General or Director General] or Director or the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner], as the case may be, may authorise any [Additional Director or Additional Commissioner or] Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer, or (B) such [Additional Director or Additional Commissioner or] Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy D ..... 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(c), then, notwithstanding anything contained in Section 120, it shall be competent for him to exercise the powers under this sub- section in all cases where he has reason to believe that any delay in getting the authorisation from the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] having jurisdiction over such person may be prejudicial to the interests of the revenue: Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii): [ Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or person or entity to comply with such requisition.] (3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. Explanation . For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub- section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of sub-section (1). (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Director] shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income Tax Act, 1922 (11 of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed. [(8-A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order:] Provided that the [[Principal Director or Director] or, as the case may be, [Principal Commissioner or Commissioner]] shall not approve the extension of the period for any period beyond the expiry of thirty days after the completion of all the proceedings under this Act in respect of the years for which the books of account, other documents, money, bullion, jewellery or other valuable articles or things are relevant. (9) The person from whose custody any books of account or other documents are seized under sub-section (1) or sub-section (1-A) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, as the case may be, within a period of sixty days from the date of receipt of such reference.]] (10) If a person legally entitled to the books of account or other documents seized under sub-section (1) or sub-section (1-A) objects for any reason to the approval given by the [Principal Chief Commissioner or Chief Commissioner], [Principal Commissioner or Commissioner], [Principal Director General or Director General] or Director] under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents [and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit]. [* * *] (13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub- section (1) or sub-section (1-A). (14) The Board may make rules in relation to any search or seizure under this section; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 276-C of the Act reads as follows: 276-C. Wilful attempt to evade tax, etc. ( 1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable [or imposable, or under reports his income,] under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable, (i) in a case where the [or tax on under-reported income] exceeds [twenty-five hundred thousand rupees], with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two years] and with fine. (2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty, or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two years] and shall, in the discretion of the court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully fails to furnish in due time the return of income required under Section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276-C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under Section 271(1-C) of the Act came to a positive finding that there is no act of concealment on the part of the assessee and he had returned the income on estimate basis. The Tribunal further found that it is a case purely on difference of opinion as to the estimates and not a case of concealment of income or even furnishing of inaccurate particulars of income. ( Emphasis supplied) The interpretation is to the same effect. The Apex Court holds that willful attempt to evade tax, penalty or interest chargeable should be a positive act on the part of the accused which is required to be proved to bring home the charge against the accused. The Apex Court in the case of UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS (2008) 13 SCC 369 has held as follows: . . 17. It is of significance to note that the conceptual and contextual difference between Section 271(1)(c) and Section 276-C of the IT Act was lost sight of in Dilip Shroff case [(2007) 6 SCC 329 : (2007) 8 Scale 304] . 18. The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to inaccurate particulars. 19. It was tried to be suggested that Section 14-A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form part of the total income. It was, therefore, reiterated before us that the assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 3,78,36,508/- and the tax payable thereon at Rs. 1,03,88,310/- for the assessment year 2011-12 respectively. Petitioner No. 1 though filed returns, failed to pay the self-assessment tax along with the return of income under Section 140A of the IT Act. In the meanwhile, the property owned by petitioner No. 1 was attached under Section 281B of the Act. The attachment was later lifted on condition that the sale proceeds of the attached property would be directly remitted to the Department. Thereafter, petitioner No. 1 sent a cheque for Rs. 1,25,00,000 towards self-assessment tax due for the assessment years 2010-11 and 2011-12. On the back of the said cheque, it was instructed that cheque to be presented at the time of registration of the property . In view of this Instruction, Department did not encash the said cheque. Contending that the petitioners have willfully and deliberately made an attempt to create circumstances to enable them to evade payment of tax, a complaint was lodged before the Court for Economic Offences, Bengaluru, seeking prosecution of the petitioners for the offence punishable under Section 276C(2) of the Act. The Special Court took cognizance of the offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a erroneous calculation of tax which cannot be attracted in a case of the kind. The order in the case of VYALIKAVAL HOUSE BUILDING CO-OPERATIVE SOCIETY LIMITED has been followed in a subsequent judgment by another co-ordinate Bench of this Court in the case of M/S CONFIDENT PROJECTS (INDIA) PRIVATE LIMITED v. INCOME TAX DEPARTMENT Crl.P.No.5480 of 2016 c/w 5481 of 2016 decided on 28-01-2021 . The issues framed by the co-ordinate Bench which are germane for consideration of issues raised in the lis are as follows: (1) (3) Whether the delayed payment of amount to evasion of tax or not? income tax would (5) Whether the order of cognizance by the Economic Offences Court is proper and correct? The co-ordinate Bench answers the said issues as follows: . 10. Answer to Point No. 3: Whether the delayed payment of Income Tax would amount to evasion of tax or not? 10.1. This question is no longer res integra inasmuch as this Court in Crl.P No. 4891/2014 ( Vyalikaval's case) has held that delayed payment of income tax would not amount to evasion of tax. Applying the same principle to the present fact situation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. The other submission is with regard to the order of the learned Magistrate taking cognizance of the offence. The order taking cognizance reads as follows: Complainant present, perused complaint and connected papers, sufficient materials placed to proceed against the Accused for the offence punishable under Section 276C(1) of the Income Tax Act, 1961. Accordingly Cognizance is taken . Office is hereby directed to register the case against Accused in III register and issue A/s to Accused R/by 6-10-2016 . All that the order reads is complainant present and perused complaint. Sufficient materials are placed to proceed against the accused for offence punishable under Section 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 crim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 12.8. The order of taking Cognisance is a safeguard inbuilt in the criminal justice system as so to avoid malicious prosecution and/or frivolous complaints. 12.9. When a complaint or a police report or information by a person other than police officer is placed before the Court, the judicial officer must apply judicious mind coupled with discretion which is not to be exercised in an arbitrary, capricious, whimsical, fanciful or casual way. 12.10. Any offence alleged being one of commission or omission attracting penal statutes; Cognisance can be taken only if the allegations made fulfil the basic requirement of the said penal provision. At this point, it is not required for the Court taking Cognisance to ascertain the truth or veracity of the allegation but only to appreciate if the allegations taken at face value, would amount to the offence complained of or not. If Yes, Cognisance could be taken, if No, taking Cognisance could be refused. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie reading of the order of Cognisance. (Emphasis supplied) In the light of the law so laid down by the co-ordinate Bench, which in fact follows the earlier judgments of the Apex Court, an identical order of taking cognizance which forms the fulcrum of cases at hand would also be rendered illegal. As observed hereinabove, the judgment of the co-ordinate Bench in the case of M/s CONFIDENT PROJECTS (INDIA) PVT LTD., was tossed before the Apex Court by the revenue unsuccessfully, except in regard to findings under Section 202 of the CrPC. The order of the Apex Court passed in Special Leave to Appeal (Crl.) No. 8316 of 2021 dated 13-12-2021 reads as follows: In view of the peculiar facts of the present case, we are not inclined to interfere with the impugned order and hence the special leave petition is dismissed. The dismissal of the special leave petition would not be construed as approval of the observations made in the impugned judgment in re. Section 202 of the Code of Criminal Procedure, 1973. Neither the dismissal nor the findings recorded in the impugned order reflect on other proceedings under the Income Tax Act, 1961. The Apex Court affirms all th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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