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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 ..... ted against the petitioners under Section 276C of the Income Tax Act, 1961 ('the Act' for short). Since issues raised and facts leading to registration of crime in every one of these cases are similar, they are taken up together and considered in this common order. 2. Facts leading to initiation of proceedings have a slight variation from petition to petition. Therefore, I deem it appropriate to succinctly note the facts in each of the petitions. 3. The petitioners in all these cases are income tax assesses for decades. Criminal Petition Nos. 909 and 4590 of 2017 concern one Anurag Bagaria. He claims to be a businessman and is assessed to pay tax in his individual capacity right from 1977. At the relevant point in time, the petitioner while filing his returns under Section 139 of the Act, claimed certain deductions under Chapter VI-A and in particular, deductions under the heads of Long-Term Capital Gain/Short Term Capital Loss. Long after the said deductions, sometime around September, 2015 the Income-Tax Department conducts search under Section 132 of the Act and later registers a crime on 30-07-2016 which becomes a crime in C.C. No. 221 of 2016 for offence punishable under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 and Criminal Petition Nos. 913 and 4595 of 2017 which belong to the Companies, the allegation is the same. The financial year vary from 2010-11 to 2012-13. Here the Company has claimed capital gain of Rs. 19,22,44,266/- by trading with the same Companies. In Criminal petition No. 913 of 2017, the Company is said to have claimed long term capital gain of Rs. 1,93,02,738/- by trading with the same Company. Therefore, the solitary stream of allegation that runs qua the petitioners in all these cases is that the petitioners have registered long term capital gain or short term capital loss and thus the claims registered are bogus. It appears that all these claims so registered by the respective income tax assessees for the year 2010-11 which runs through 2012-13, the claims were accepted by the Income-Tax Department. At a later point in time, it was found that these claims had some suspicion. Based thereon assessment proceedings were instituted under the Income Tax Act for levy of penalty and simultaneously search was conducted under Section 132 of the Act. Statements of assessees were recorded under sub-section (4) of Section 132 of the Act and premises were also searched and later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessees who have willfully evaded payment of tax. Both the counsel appearing for assessees and revenue have relied on several judgments which would bear consideration according to their relevance in the course of the order. 9. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record. 10. The afore-narrated facts are not in dispute. The petitioners, be it individuals or Companies, now alleged of similar offences are all income-tax assessees for several decades. Between the years 2010-11 and 2012-13 individuals and Companies had registered two claims - one deduction for long term capital gain and the other deduction for short term capital loss while filing their returns under Section 139 of the Act. All was well up to September, 2015. The Department conducted search on all the petitioners herein under Section 132 of the Act. Section 132 of the Act reads as follows: "132. Search and seizure.-(1) [Where the [Principal Director General or Director General] or Director or the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] or Additional Director or Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (ii-a) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; [(ii-b) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of Section 2 of the Information Technology Act, 2000, to afford the authorised officer the necessary facility to inspect such books of account or other documents;] (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search: [Provided that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be disclosed to any person or any authority or the Appellate Tribunal.] (1-A) Where any [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner], in consequence of information in his possession, has reason to suspect that any books of account, other documents, money, bullion, jewellery or other valuable article or thing in respect of which an officer has been authorised by the [Principal Director General or Director General] or Director or any other [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] or Additional Director or Additional Commissioner] [or Joint Director or Joint Commissioner]to take action under clauses (i) to (v) of sub- section (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the authorisation under sub-section (1), such [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] may, notwithstanding anything contained in Section 120, authorise the said officer to take action under any of the clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft. [Explanation.- For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of any investigation connected with any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act. (4-A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document, stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. [* * *] (8) The books of account or other documents seized under sub-section (1) or sub-section (1-A) shall not be retained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch person within a period of sixty days from the date on which the last of the authorisations for search was executed and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Assessing Officer.] [(9-B) Where, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorisations for search was executed, the authorised officer, for reasons to be recorded in writing, is satisfied that for the purpose of protecting the interest of revenue, it is necessary so to do, he may with the previous approval of the Principal Director General or Director General or the Principal Director or Director, by order in writing, attach provisionally any property belonging to the assessee, and for the said purposes, the provisions of the Second Schedule shall, mutatis mutandis, apply. (9-C) Every provisional attachment made under sub- section (9B) shall cease to have effect after the expiry of a period of six months from the date of the order referred to in sub-section (9B). [(9-D) The authorised officer may, during the course of the search or seizure or within a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose case the warrant of authorisation has been issued; or (b) in the case of requisition under Section 132-A, on the actual receipt of the books of account or other documents or assets by the authorised officer.] Explanation 2.-In this section, the word "proceeding" means any proceeding in respect of any year, whether under the Indian Income Tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year." (Emphasis supplied) Section 132 deals with search and seizure. Sub-section (4) of Section 132 deals with the power of the authorized officer, who shall, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents inter alia and record any statement made by such person during the examination. This is permissible to be used as evidence in any proceeding under the Act. The search results in seizing of books of account. Seizure leads to discovery of certain payments cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be omitted any relevant entry or statement in such books of account or other documents; or (iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof." (Emphasis supplied) Section 276-C makes the person liable for punishment and penalty if one willfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable. Sub-section (2) of Section 276- C also deals with a person who willfully attempts to evade tax. The proceedings are instituted for offences punishable under Section 276-C of the Act. The submission is that there is no mens rea as it was a claim based on documents. The claim is not accepted by the revenue. Mere non-acceptance of the claim by the revenue would not mean that evasion was willful. On the contrary, the case of the revenue was that evasion was willful and, therefore, it is presumed to be out of guilty mind i.e., mens rea. 11. Before embarking upon consideration of defence of the petitioners, I deem it appropriate to notice the law laid down by the Apex Court and that of this Court interpreting Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws." 5. Accordingly, we hold that the element of mens rea was not required to be proved in the proceedings taken by the Income Tax Officer under Section 271(1)(a) of the Income Tax Act against the assessee for the assessment years 1965-1966 and 1966-1967." (Emphasis supplied) The Apex Court holds that Section 276-C of the Act can be invoked only if a person willfully fails to furnish in due time the return of income required under Section 139(1) of the Act. It should be willful and should establish element of mens rea which would be sufficient to prove default in complying with the statute. This principle is reiterated in PREM DASS v. INCOME TAX OFFICER (1999) 5 SCC 241 wherein it is held as follows: "8. Wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act under Section 276-C is a positive act on the part of the accused which is required to be proved to bring home the charge against the accused. Similarly a statement made by a person in any verificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OMMISSIONER OF INCOME TAX, AHMEDABAD v. RELIANCE PETROPRODUCTS PRIVATE LIMITED (2010) 11 SCC 762 has held as follows: ".... .... .... .... 15. It was only on the point of mens rea that the judgment in Dilip N. Shroff v. CIT [(2007) 6 SCC 329] was upset. In Union of India v. Dharamendra Textile Processors [(2008) 13 SCC 369] after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with the Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why the decision in Dilip N. Shroff v. CIT [(2007) 6 SCC 329] was overruled by this Court in Union of India v. Dharamendra Textile Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature." (Emphasis supplied) The Apex Court again holds that 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. 12. Following all the aforesaid judgments, a co-ordinate Bench of this Court in the case of M/S VYALIKAVAL HOUSE BUILDING CO-OPERATIVE SOCIETY LIMITED v. INCOME TAX DEPARTMENT Crl.P.No.4891 of 2014 c/w Crl.P.No.4892 of 2014 decided on 14-06-2019 has held as follows: "2. The premises of petitioner No. 1 was subjected to search and seizure under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act. for brevity) on 5.7.2011. Consequent to search, assessment proceedings came to be initiated by the Assessing Officer by issuing a notice under Section 153A of the Act dated 27.9.2011 calling upon petitioner No. 1 to file its returns of income for the assessment years 2006- 07 to 2011-12. Since there was no compliance of the aforesaid notice, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed crime". It is doing "something in the direction of commission of offence". Viewed in that sense, in order to render the accused guilty of "attempt to evade tax" it must be shown that he has done some positive act with an Intention to evade tax. 9. In the instant case, the only circumstance relied on by the respondent in support of the charge levelled against the petitioners is that, even though accused filed the returns, yet, it failed to pay the self- assessment tax along with the returns. This circumstance even if accepted as true, the same does not constitute the offence under Section 276C (2) of the Act. The act of filing the returns by itself cannot be construed as an attempt to evade tax, rather the submission of the returns would suggest that petitioner No. 1 had voluntarily declared his intention to pay tax. The act of submitting returns is not connected with the evasion of tax. It is only an act which is closely connected with the intended crime, that can be construed as an act in attempt of the intended offence. In the backdrop of this legal principle, the Hon'ble Supreme Court in the case of Prem Dass-vs-Income Tax Officer cited supra, has held that a positive a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases what is necessary to be present is mens rea. Incorrect claim or erroneous claim would not amount to willful evasion. Erroneous claim in certain circumstances can be erroneous interpretation of law. 13. On the bedrock of the principles laid down in the afore- quoted judgments, the case at hand requires to be noticed. The offence alleged against each of the petitioners is as afore-quoted. The 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. 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. These cases would become cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vivek Holla, learned counsel for the petitioners has contended that the Court taking Cognisance is required to apply its mind while taking Cognisance, the above order passed does not indicate such application of mind as such the order of Cognisance is to be set aside. 12.3. The Hon'ble Apex Court as also this Court in a catena of decisions has categorically held that the court taking Cognisance is required to apply its mind to the allegations made and the applicable statute and thereafter pass a reasoned order in writing taking Cognisance, which should be apparent from a reading of the order of Cognisance to indicate that the requirement of "sufficient grounds for proceedings" in terms of Section 204 of the code has been complied with. 12.4. 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. 12.5. 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 inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutes as also the various decisions of the Honb'le Apex Court extracted hereinabove. 12.14. When there are multiple accused, the order is required to disclose the application of mind by the Court taking Cognisance as regards each accused. 12.15. 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. 12.16. In view of the above, I am of the considered opinion that the order dated 29.03.2016 taking Cognisance is not in compliance with applicable law and therefore is set aside. 12.17. I answer Point No. 5 by holding that the order of Cognisance dated 29.03.2016 in both matters is not in compliance with the requirement of Section 191(1)(a) of the Cr.P.C and further does not indicate the procedure under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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