Crlp/3165/2008 Of Sri Ranbir Singh Bagga v. Depurty Commissioner Of Income Tax Central Circle-1

HON'BLE SRI JUSTICE M.S.K.JAISWAL Criminal Petition No.3165 of 2008 ORDER:- This petition is filed under Section 482 Cr.P.C., for quashing allfurther proceedings in C.C.No.143 of 2007 on the file of the SpecialJudge for Economic Offences, Hyderabad, filed by the 1[st]respondent under Section 276C of the Income-Tax Act, 1961(hereinafter referred to as ‘the Act’). 2. The allegation of the complainant is that for the assessmentyear 2002-03, the petitioner/accused declared his total income atRs.46,43,834/-. As per the computation sheet filed along with thereturn of the income, the total tax payable was Rs.13,89,280/- andafter giving credit for Tax Deducted at Source amounting toRs.22,22,388/-, the assessee has to get refund of Rs.8,33,108/-. Thereturn of income was processed under Section 143(1) of the Act on25-02-2003 and the tax refundable is determined at Rs.6,48,970/-. The intimation under Section 143(1) was modified on 08-12-2003,since some TDS certificates enclosed to the return of income aredefective and the refund due to the assessee worked out toRs.4,31,053/- The case was converted into scrutiny andproceedings were completed under Section 143(3) of the Act on 28-03-2005 raising demand of Rs.74,20,549/-. Subsequently, thepetitioner has filed appeal before CIT (A) and the CIT (A) hasenhanced the total income and after giving appeal effect the taxableincome is Rs.2,37,63,430/- and demand payable worked out toRs.76,85,198/- and on this the assessee has paid Rs.2,00,000/- on31-03-2006 and the demand outstanding as on the date isRs.74,85,198/-. It is further alleged that the Commissioner of Income-Tax (C) vide letter dated 17-10-2006 granted time to the assessee topay instalments of Rs.10,00,000/- each by 5[th] November, 2006 and5[th] December, 2006 in respect of demand outstanding in Bagga Group of Cases. 3. It is further alleged that though the assessee was havingsufficient resources to make payment of demand, the assessee hasnot paid and attempted to evade payment of tax. Therefore, a noticeunder Section 276(C)(2) was issued giving three days time for reply. That the assessee gave a reply on 18-04-2007 denying his liability. It is clear that the assessee is deliberately with an intention to evadepayment of tax, postponing the payment and there is wilful attempt inevading payment of tax outstanding. Hence, the complaint. 4. This complaint is sought to be quashed by thepetitioner/assessee on the ground that by no stretch of imagination itcan be said that the assessee has made any wilful attempt to evadepayment of tax. 5. It is contended that the petitioner filed the Income-Tax Returndisclosing the total income at Rs.46,43,834/- and the total taxpayable was Rs.13,89,280/- and after giving credit to TDS ofRs22,22,388/-, the petitioner has to get refund of Rs8,33,108/-. Thereturn of income was processed and the tax refundable isdetermined at Rs.6,48,970/- and as per the modification order, dated08-12-2003, the refund due to the petitioner worked out to beRs.4,31,053/-. This case was converted into scrutiny andproceedings were completed on 28-03-2005 raising demand ofRs.74,20,549/-. Aggrieved by the said demand, the petitioner filedan appeal before the CIT (A) and the CIT (A) has enhanced the totaltaxable income to Rs.2,37,63,430/- and demand payable was raisedto Rs.76,85,198/-. The petitioner paid Rs.2,00,000/- on 31-03-2006 and the demand outstanding as on the date is Rs.74,85,198/-. On the appeal filed by the petitioner before the Income TaxAppellate Tribunal, the Deputy Commissioner of Income Tax, on 08-03-2011, passed a consequential order observing that the tax creditswill result in refund and no demand will exist. 6. It is further submitted that a cursory glance of the provisions of On the appeal filed by the petitioner before the Income TaxAppellate Tribunal, the Deputy Commissioner of Income Tax, on 08-03-2011, passed a consequential order observing that the tax creditswill result in refund and no demand will exist. 6. It is further submitted that a cursory glance of the provisions of Section 276C of the Act reveal that the said provision for punishingan assessee who is guilty of evasion of tax is designed to prosecuteassessees who have either not disclosed any accurate particulars ofincome or concealed material particulars of income. Theexplanation appended to Section 276C of the Act shows theobjective behind the said provision to punish the assessee who isguilty of tax evasion. Prosecution is entirely different from theprocess of recovery which is contemplated in Schedule II of the Act. It is submitted that the provisions of Section 276C of the Act are paramateria with Order XXI of C.P.C., laying down elaborate procedurefor recovery of taxes which are quantified and assessed in the handsof the assessee. The Department has all the powers of a civil Courtvirtually to attach and sale movable as also immovable propertybelonging to the defaulting assessee. Even the provision ofdetention of an assessee to civil imprisonment is provided. Therefore, it is submitted that when the returns are filed and tax waspaid within the permitted time or if there is any dispute, launchingcriminal prosecution under Section 276C is onerous without takingrecourse to the other provisions of the Act. Therefore, launching ofthe criminal prosecution is nothing but subjecting the assessee toneedless harassment and hence all further proceedings in thecalendar case may be quashed. 7. In that view of the matter, what is required to be seen is as towhether the petitioner/assessee has conducted himself in themanner which could fall within the ambit of Section 276C of the Actso as to prosecute him in a criminal Court and whether he can betermed as a person who wilfully attempted to evade any tax, penaltyor interest. Section 276C of the Act reads as under:- “Wilful attempt to evade tax, etc. (1)If a person wilfully attempts in any mannerwhatsoever to evade any tax, penalty or interestchargeable or imposable under this Act, he shall,without prejudice to any penalty that may be imposable on him under any other provision of thisAct, be punishable – (i)in a case where the amount sought tobe evaded exceeds twenty-five hundredthousand rupees, with rigorousimprisonment for term which shall not beless than six months but which mayextend to seven years and with fine; (ii)in any other case, with rigorousimprisonment for a term which shall notbe less than three months but which mayextend to two years and with fine.imprisonment for a term which shall notbe less than three months but which mayextend to two years and with fine. (2)If a person wilfully attempts in any mannerwhatsoever to evade the payment of any tax,penalty or interest under this Act, he shall, withoutprejudice to any penalty that may be imposable onhim under any other provision of this Act, bepunishable with rigorous imprisonment for a termwhich shall not be less than three months butwhich may extend to two years and shall, in thediscretion of the Court, also be liable to fine.whatsoever to evade the payment of any tax,penalty or interest under this Act, he shall, withoutprejudice to any penalty that may be imposable onhim under any other provision of this Act, bepunishable with rigorous imprisonment for a termwhich shall not be less than three months butwhich may extend to two years and shall, in thediscretion of the Court, also be liable to fine. Explanation – For the purposes of this Section, a wilfulattempt to evade any tax, penalty or interest chargeableor imposable under this Act or the payment thereofshall include a case where any person – Explanation – For the purposes of this Section, a wilfulattempt to evade any tax, penalty or interest chargeableor imposable under this Act or the payment thereofshall include a case where any person – (i)has in his possession or control anybooks of account or other documents(being books of account or otherdocuments relevant to any proceedingunder this Act) containing a false entry orstatement; or (ii)makes or causes to be made any false entry or statement in such books ofaccount or other documents; or (iii)wilfully omits or causes to be omittedany relevant entry or statement in suchbooks of account or other documents; or(iv)causes any other circumstance to existwhich will have the effect of enablingsuch person to evade any tax, penalty orinterest chargeable or imposable underthis Act or the payment thereof.” 8. A bare reading of the above provision, unambiguouslydemonstrate that the said provision can be invoked without prejudiceto any penalty that may be imposable but in order to attract thestringent provisions of criminal prosecution what is required is thatthere should be a wilful attempt to evade any tax, penalty or interest. The explanation appended to the Section, as seen above, makes itclear as to what acts of an assessee can be brought within the ambitof a person guilty of wilful attempt to evade any tax. 9. The explanation provides for four categories of acts whichencompasses the conduct to come within the ambit of wilful attempt. 10. Learned Counsel appearing for the petitioner/assesseestrenuously submitted that in the case in hand, the assessee hasfiled the return declaring his income and also the tax payable byhim. Upon processing the return, which is filed under Section 139 ofthe Act, if there is any defect, the Assessing Officer can call upon theassessee to rectify the defects, if any, noticed. Section 143 of the Actprovides for assessment and after computing the same, an intimationshall be sent to the assessee specifying the sum determined to bepayable or the amount of refund due to assessee. The penaltiesimposable, for failure to furnish return, comply with notices,concealment of income etc., is incorporated in Chapter XXI of theAct. Section 271 stipulates that if the Assessing Officer is satisfiedthat any person has failed to comply with notice, under sub-section(2) of Section 115WD, or under sub-section (2) of Section 115WE, orunder sub-section (1) of Section 142 or sub-section (2) of Section143, or fails to comply with a direction issued under sub-section (2A)of Section 142, or has concealed the particulars of his income orfurnished inaccurate particulars of such income, can be directed topay the penalty as contemplated under Section 271 of the Act. Under the same Chapter, there is Section 276C which provides forcriminal prosecution. When Section 271 of the Act takes care of an assessee who has failed to comply with the demand notice, or hasconcealed the particulars of his income or furnished inaccurateparticulars of income, Section 276C deals with a person who wilfullyattempts in any manner whatsoever to evade any tax. There is nogain saying the fact that Section 271 of the Act has to be invoked inrespect of assesses who, by the Assessing Officer, is found to havemade a wilful attempt to evade any tax, penalty or interest. Theunderlying principle is manifest. There may be instances where anassessee furnished inaccurate particulars or conceals someparticulars of the income but files the return and pays the tax asdetermined by him has to be treated under Section 271 of the Act byimposing penalties as against a person who wilfully attempts toevade payment of any tax. Wilful evasion of the tax is more seriousthan concealing a particular income. Therefore, the former has to bedealt with under Section 276C of the Act whereas the latter has to bedealt with under Section 271 of the Act. 11. How the honest assesses and tax evaders are to be dealt withcan be noticed from different provisions of the Act. For instancew.e.f., 01-04-1989, Section 143 (1-A) of the Act is introduced and theobject thereof is the prevention of evasion of tax. By introduction ofthis Section, persons who have filed returns in which they havesought to evade the tax properly payable by them is meant to have adeterrent effect and hefty amount of 20% as additional income tax ispayable on the difference between what is declared in the return andwhat is assessed to tax. However, for launching criminalprosecution, which by any standards is more stringent and harshthan any other provisions of the Act even severe than Parts I to VI ofSchedule-II of the Act, the basic requirement is the satisfaction of theRevenue that there was wilful attempt to evade tax. It is no doubttrue that prosecution under Section 276C of the Act is withoutprejudice to any penalty that may be imposable on an assessee butthe authorities should take notice of the following observations of the Constitution Bench of the Supreme Court made as long back as in1957 in the decision reported in PANNALAL BINJRAJ v. UNION OF INDIA[[1]]viz., “A humane and considerate administration of therelevant provisions of the Income Tax Act would go a long way inallaying the apprehensions of the assessees and if that is done intrue spirit, no assessee will be in a position to charge the revenuewith administering the provisions of the Act with an evil eye andunequal hand.” 12. Learned Counsel appearing for the petitioner has relied upona decision of the Supreme Court reported in K.C.Builders and Anr. V. The Assistant Commissioner of Income Tax[[2]]. 13. In the case before the Apex Court, the assessee wasunsuccessful in his attempts to get the proceedings launched in acriminal Court quashed under the provisions of Sections 397 and401 Cr.P.C. The trial Court and the High Court rejected the prayer ofthe assessee and hence the matter went to the Supreme Court. Afterelaborately referring to the case law on the subject, the SupremeCourt made the following observations in paragraph Nos.16, 17, 26,27, 28, 29 and 34, which have a bearing to the facts of the case inhand and ultimately quashed the criminal case registered againstthe assessee:- “16. The word “concealment” inherently carriedwith it the element of mens rea. Therefore, the merefact that some figure or some particulars have beendisclosed by itself, even if takes out the case from thepurview of non-disclosure, it cannot by itself take outthe case from the purview of furnishing inaccurateparticulars. Mere omission from the return of an item ofreceipt does neither amount to concealment nordeliberate furnishing of inaccurate particulars ofincome unless and until there is some evidence toshow or some circumstances found from which it canbe gathered that the omission was attributable to anintention or desire in the part of the assessee to hide or conceal the income so as to avoid the imposition of taxthereon. In order that a penalty under Section 271(1)(iii) may be imposed it has to be proved that theassessee has consciously made the concealment orfurnished inaccurate particulars of his income. Wherethe additions made in the assessment order, on thebasis of which penalty for concealment was levied, aredeleted, there remains no basis at all for levying thepenalty for concealment and, therefore, in such a caseno such penalty can survive and the same is liable tobe cancelled as in the instant case. Ordinarily, penaltycannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on thebasis of which penalty has been levied on theassessee has itself been finally set aside or cancelledby the Tribunal or otherwise, the penalty cannot standby itself and the same is liable to be cancelled as in theinstant case ordered by the Tribunal and latercancellation of penalty by the authorities. 17. Section 276C of the Act deals with wilfulattempt to evade tax, etc. Section 277 deals with falsestatement in verification, etc. and Section 278B dealswith the offences by companies. 26. The above Judgment squarely applies to thefacts and circumstances of the case on hand. In thiscase also, similarly, the application was moved by theassessee before the Magistrate to drop the criminalproceedings which were dismissed by the Magistrateand the High Court also on a petition filed underSections 397 and 401 of the Code of CriminalProcedure, 1973 to revise the order of the AdditionalChief Metropolitan Magistrate has also dismissed thesame and refused to refer to the order passed by thecompetent Tribunal. As held by this Court, the HighCourt is not justified in dismissing the criminal revisionvide its Judgment ignoring the settled law as laid wonby this Court that the finding of the appellate Tribunalwas conclusive and the prosecution cannot besustained since the penalty after having beencancelled by the complainant following the appellateTribunal’s order, no offence survives under the IncomeTax Act and thus quashing of prosecution is automatic. 27. In the instant case, the penalties leviedunder Section 271(1)(c) were cancelled by therespondent by giving effect to the order of the IncomeTax Appellate Tribunal in I.T.A.Nos.3129-3132. It issettled law that levy, of penalties and prosecutionunder Section 276C are simultaneous.Hence,once the penalties are cancelled on the ground thatthere is no concealment, the quashing ofprosecution under Section 276C is automatic. 28. In our opinion, the appellants cannot bemade to suffer and face the rigorous of criminal trialwhen the same cannot be sustained in the eyes of lawbecause the entire prosecution in view of a conclusivefinding of the Income tax Tribunal that there is noconcealment of income becomes devoid of jurisdictionand under Section 254 of the Act, a finding of theAppellate Tribunal supercedes the order of theAssessing Officer under Section 143(3) more so whenthe Assessing Officer cancelled the penalty levied. 29. In our view, once the finding of concealmentand subsequent levy of penalties under Section 271(1)(c) of the Act has been struck down by the Tribunal, theAssessing Officer has no other alternative except tocorrect his order under Section 154 of the Act as perthe directions of the Tribunal. As already noticed, thesubject matter of the complaint before this Court isconcealment of income arrived at on the basis ofthe finding of the Assessing Officer, if the Tribunalhas set aside the order of concealment andpenalties, there is no concealment in the eyes oflaw and, therefore, the prosecution cannot beproceeded with by the complainant and furtherproceedings will be illegal and without jurisdiction.The Assistant Commissioner of Income Tax cannotproceed with the prosecution even after the order ofconcealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty,the criminal proceedings against the appellants cannotsurvive for further consideration. In our view, the HighCourt has taken the view that the charges have beenframed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken bythe learned Magistrate and the High Court isfallacious. In our view, if the trial is allowed to proceedfurther after the order of the Tribunal and theconsequent cancellation of penalty, it will be an idleand empty formality to require the appellants to havethe order of Tribunal exhibited as a defence documentinasmuch as the passing of the order asaforementioned is unsustainable and unquestionable. 30. It is a well-established principle that thematter which has been adjudicated and settled by theTribunal need not be dragged into the criminal Courtsunless and until the act of the appellants could havebeen described as culpable.” proceed with the trial. In our opinion, the view taken bythe learned Magistrate and the High Court isfallacious. In our view, if the trial is allowed to proceedfurther after the order of the Tribunal and theconsequent cancellation of penalty, it will be an idleand empty formality to require the appellants to havethe order of Tribunal exhibited as a defence documentinasmuch as the passing of the order asaforementioned is unsustainable and unquestionable. 30. It is a well-established principle that thematter which has been adjudicated and settled by theTribunal need not be dragged into the criminal Courtsunless and until the act of the appellants could havebeen described as culpable.” 14. Bearing in mind the above principles enunciated by theSupreme Court and in view of the submissions made by the learnedsenior Counsel appearing for the petitioner, what could be stated isthat continuing the criminal prosecution of the petitioner/assesseewill be subjecting the assessee to needless harassment in view ofthe facts and circumstances noted hereunder:- In the instant case, the complaint is that a demand outstandingis Rs.74,85,198/- and the assessee has not responded to the noticesissued by the complainant. In so far as the demand in the case isconcerned, amounting to Rs.74,85,198/-, it is admitted that on 08-03-2011 the Deputy Commissioner of Income Tax passed an orderobserving that the tax credits will result in refund and no demand willexist. Proof thereof is produced. It is not disputed. In that view of the matter, all further proceedings are liable tobe quashed. 15. In the result, the Criminal Petition is allowed quashing allfurther proceedings in C.C.No.143 of 2007 on the file of the SpecialJudge for Economic Offences at Hyderabad against thepetitioner/accused. Miscellaneous petitions, if any, pending in this Criminal Petition shall stand closed. September, 2015 smr [1]AIR 1957 SC 397 [2](2004) 2 SCC 731 ___________________ M.S.K.Jaiswal, J