Crlp/3956/2008 Of Smt. K.rama Devi v. The Deputy Commissioner Of Income Tax

HON'BLE SRI JUSTICE M.S.K.JAISWAL Criminal Petition No.3956 of 2008 ORDER:- This petition is filed by the petitioners/A.3 and A.5 under Section 482 Cr.P.C., forquashing all further proceedings against them in C.C.No.71 of 2007 on the file of theSpecial Judge for Economic Offences, Hyderabad, filed by the 1[st] respondent underSections 276C and 278B of the Income-Tax Act, 1961 (hereinafter referred to as ‘theAct’). 2. Ind Barath Energies Limited – A.1 is a registered Company. A.2 is the Chairmanand Managing Director; A.4 is the whole-time Director; and A.3 and A.5 are theDirectors of A.1 Company. 3. The allegation of the complainant is that for the assessment year 2005-06, A.1Company filed its income-tax returns on 30-10-2005 disclosing ‘NIL’ income byshowing Book Profits for the purpose of computation of MAT u/s.115JB atRs.4,41,58,130/- and the said return was accepted under Section 143(1) of the Act. Itis alleged that as per the Book Profits, A.1 Company has the tax liability ofRs.39,19,606/-. As per the provisions of Section 210 of the Act, the accusedCompany was required to pay the same amount of tax by way of Advance Tax or inthe alternative, the said amount should have been paid by way of Self-AssessmentTax as per the provisions of Section 140A before filing the return of income. But theaccused Company filed the return for the Assessment Year 2005-06 without payingthe taxes either by way of Advance Tax or by way of Self-Assessment Tax. Noticeunder Section 156 of the Act was served on the Company but it had not paid thedemand even after lapse of a long time, and that, such failure to pay the taxes waswilful. It is also alleged that a penalty opportunity letter was issued to the accusedCompany on 21-11-2005 and to all its Directors on 30-11-2005 to submit theirexplanation fixing the dates of hearing as 25-11-2005 and 08-12-2005. The accusedCompany submitted its explanation on 07-12-2005 wherein it is simply stated thatthere is only the payment of tax being made with interest after filing the return ofincome with interest. The accused Company was deliberately filing the returns ofincome in time without payment of taxes, even at the stage of filing of the returns, asis required under Section 140A of the Act. A.2 to A.4 have overall control over the affairs of A.1 Company and were responsible for conducting the business of theCompany. 4. This complaint is sought to be quashed by the petitioners/A.3 and A.5 on theground that A.3 is a housewife and A.5 is Director of A.1’s Company and they wereneither in-charge of the day-to-day affairs of the Company nor had overall controlover the affairs of the Company. 5. It is contended that A.1 Company has filed its return of income and the same wasaccepted under Section 143(1) of the Act and later on the case was taken up forscrutiny and after conducting necessary enquiry, the income returned has beenaccepted. It is submitted that as per the Assessment Order, dated 18-12-2007, thedemand is NIL and the tax and interest of Rs.39,14,408/- was paid by 25-11-2005i.e., one year prior to the Assessment Order. It is submitted that for the delay inremitting the tax, the respondent/complainant filed the present complaint roping thepetitioners along with A.1, A.2 and A.4 under Section 278B of the Act alleging thatthey were in-charge of and responsible to the affairs of A.1 Company in conductingits business and in the absence of such allegation, the present complaint is notmaintainable, and therefore continuation of proceedings against the petitioners isabuse of process of Court. 6. It is further submitted that a cursory glance of the provisions of Section 276C of theAct reveal that the said provision for punishing an assessee who is guilty of evasionof tax is designed to prosecute assessees who have either not disclosed anyaccurate particulars of income or concealed material particulars of income. Theexplanation appended to Section 276C of the Act shows the objective behind thesaid provision to punish the assessee who is guilty of tax evasion. Prosecution isentirely different from the process of recovery which is contemplated in Schedule IIof 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 procedure for recovery oftaxes which are quantified and assessed in the hands of the assessee. TheDepartment has all the powers of a civil Court virtually to attach and sale movable asalso immovable property belonging to the defaulting assessee. Even the provision ofdetention of an assessee to civil imprisonment is provided. Therefore, it is submittedthat when the returns are filed and tax was paid within the permitted time or if there isany dispute, launching criminal prosecution under Section 276C is onerous withouttaking recourse to the other provisions of the Act. Therefore, launching of the criminal prosecution is nothing but subjecting the assessee to needless harassmentand hence all further proceedings in the calendar case may be quashed. 7. In that view of the matter, what is required to be seen is as to whether thepetitioner/assessee has conducted himself in the manner which could fall within theambit of Section 276C of the Act so as to prosecute him in a criminal Court andwhether he can be termed as a person who wilfully attempted to evade any tax,penalty or interest. Section 276C of the Act reads as under:- “Wilful attempt to evade tax, etc. 1. If a person wilfully attempts in any manner whatsoever to evadeany tax, penalty or interest chargeable or imposable underthis Act, he shall, without prejudice to any penalty that maybe imposable on him under any other provision of this Act,be punishable –any tax, penalty or interest chargeable or imposable underthis Act, he shall, without prejudice to any penalty that maybe imposable on him under any other provision of this Act,be punishable – i. in a case where the amount sought to be evadedexceeds twenty-five hundred thousandrupees, with rigorous imprisonment for termwhich shall not be less than six months butwhich may extend to seven years and withfine;exceeds twenty-five hundred thousandrupees, with rigorous imprisonment for termwhich shall not be less than six months butwhich may extend to seven years and withfine; ii. in any other case, with rigorous imprisonment for aterm which shall not be less than threemonths but which may extend to two yearsand with fine.term which shall not be less than threemonths but which may extend to two yearsand with fine. 2. If a person wilfully attempts in any manner whatsoever to evadethe payment of any tax, penalty or interest under this Act, heshall, without prejudice to any penalty that may beimposable on him under any other provision of this Act, bepunishable with rigorous imprisonment for a term which shallnot be less than three months but which may extend to twoyears and shall, in the discretion of the Court, also be liableto fine.the payment of any tax, penalty or interest under this Act, heshall, without prejudice to any penalty that may beimposable on him under any other provision of this Act, bepunishable with rigorous imprisonment for a term which shallnot be less than three months but which may extend to twoyears and shall, in the discretion of the Court, also be liableto fine. Explanation – For the purposes of this Section, a wilful attempt toevade any tax, penalty or interest chargeable or imposable under thisAct or the payment thereof shall include a case where any person – iii. Explanation – For the purposes of this Section, a wilful attempt toevade any tax, penalty or interest chargeable or imposable under thisAct or the payment thereof shall include a case where any person – iii. has in his possession or control any books ofaccount or other documents (being books ofaccount or other documents relevant to anyproceeding under this Act) containing a falseentry or statement; oraccount or other documents (being books ofaccount or other documents relevant to anyproceeding under this Act) containing a falseentry or statement; or iv. makes or causes to be made any false entry orstatement in such books of account or otherdocuments; orstatement in such books of account or otherdocuments; or v. wilfully omits or causes to be omitted any relevantentry or statement in such books of account orother documents; orentry or statement in such books of account orother documents; or vi. causes any other circumstance to exist which willhave the effect of enabling such person toevade any tax, penalty or interest chargeableor imposable under this Act or the paymentthereof.”have the effect of enabling such person toevade any tax, penalty or interest chargeableor imposable under this Act or the paymentthereof.” 8. A bare reading of the above provision, unambiguously demonstrate that the saidprovision can be invoked without prejudice to any penalty that may be imposable butin order to attract the stringent provisions of criminal prosecution what is required isthat there should be a wilful attempt to evade any tax, penalty or interest. Theexplanation appended to the Section, as seen above, makes it clear as to what actsof an assessee can be brought within the ambit of a person guilty of wilful attempt toevade any tax. 9. The explanation provides for four categories of acts which encompasses theconduct to come within the ambit of wilful attempt. 10. Learned Counsel appearing for the petitioner/assessee strenuously submittedthat in the case in hand, the assessee has filed the return declaring his income andalso the tax payable by him. Upon processing the return, which is filed underSection 139 of the Act, if there is any defect, the Assessing Officer can call upon theassessee to rectify the defects, if any, noticed. Section 143 of the Act provides forassessment and after computing the same, an intimation shall be sent to theassessee specifying the sum determined to be payable or the amount of refund dueto assessee. The penalties imposable, for failure to furnish return, comply withnotices, concealment of income etc., is incorporated in Chapter XXI of the Act.Section 271 stipulates that if the Assessing Officer is satisfied that any person hasfailed to comply with notice, under sub-section (2) of Section 115WD, or under sub-section (2) of Section 115WE, or under sub-section (1) of Section 142 or sub-section(2) of Section 143, or fails to comply with a direction issued under sub-section (2A)of Section 142, or has concealed the particulars of his income or furnished inaccurate particulars of such income, can be directed to pay the penalty ascontemplated under Section 271 of the Act. Under the same Chapter, there isSection 276C which provides for criminal prosecution. When Section 271 of the Acttakes care of an assessee who has failed to comply with the demand notice, or hasconcealed the particulars of his income or furnished inaccurate particulars ofincome, Section 276C deals with a person who wilfully attempts in any mannerwhatsoever to evade any tax. There is no gain saying the fact that Section 271 of theAct has to be invoked in respect of assesses who, by the Assessing Officer, is foundto have made a wilful attempt to evade any tax, penalty or interest. The underlyingprinciple is manifest. There may be instances where an assessee furnishedinaccurate particulars or conceals some particulars of the income but files the returnand pays the tax as determined by him has to be treated under Section 271 of theAct by imposing penalties as against a person who wilfully attempts to evadepayment of any tax. Wilful evasion of the tax is more serious than concealing aparticular income. Therefore, the former has to be dealt with under Section 276C ofthe Act whereas the latter has to be dealt with under Section 271 of the Act. 11. How the honest assesses and tax evaders are to be dealt with can be noticedfrom different provisions of the Act. For instance w.e.f., 01-04-1989, Section 143 (1-A) of the Act is introduced and the object thereof is the prevention of evasion of tax.By introduction of this Section, persons who have filed returns in which they havesought to evade the tax properly payable by them is meant to have a deterrent effectand hefty amount of 20% as additional income tax is payable on the differencebetween what is declared in the return and what is assessed to tax. However, forlaunching criminal prosecution, which by any standards is more stringent and harshthan any other provisions of the Act even severe than Parts I to VI of Schedule-II ofthe Act, the basic requirement is the satisfaction of the Revenue that there was wilfulattempt to evade tax. It is no doubt true that prosecution under Section 276C of theAct is without prejudice to any penalty that may be imposable on an assessee butthe authorities should take notice of the following observations of the ConstitutionBench of the Supreme Court made as long back as in 1957 in the decision reportedi n PANNALAL BINJRAJ v. UNION OF INDIA viz., “A humane and considerateadministration of the relevant provisions of the Income Tax Act would go a long wayin allaying the apprehensions of the assessees and if that is done in true spirit, no assessee will be in a position to charge the revenue with administering theprovisions of the Act with an evil eye and unequal hand.” 12. Learned Counsel appearing for the petitioner has relied upon a decision of theSupreme Court reported in K.C.Builders and Anr. V. The AssistantCommissioner of Income Tax . 13. In the case before the Apex Court, the assessee was unsuccessful in hisattempts to get the proceedings launched in a criminal Court quashed under theprovisions of Sections 397 and 401 Cr.P.C. The trial Court and the High Courtrejected the prayer of the assessee and hence the matter went to the SupremeCourt. After elaborately referring to the case law on the subject, the Supreme Courtmade the following observations in paragraph Nos.16, 17, 26, 27, 28, 29 and 34,which have a bearing to the facts of the case in hand and ultimately quashed thecriminal case registered against the assessee:- 12. Learned Counsel appearing for the petitioner has relied upon a decision of theSupreme Court reported in K.C.Builders and Anr. V. The AssistantCommissioner of Income Tax . 13. In the case before the Apex Court, the assessee was unsuccessful in hisattempts to get the proceedings launched in a criminal Court quashed under theprovisions of Sections 397 and 401 Cr.P.C. The trial Court and the High Courtrejected the prayer of the assessee and hence the matter went to the SupremeCourt. After elaborately referring to the case law on the subject, the Supreme Courtmade the following observations in paragraph Nos.16, 17, 26, 27, 28, 29 and 34,which have a bearing to the facts of the case in hand and ultimately quashed thecriminal case registered against the assessee:- “16. The word “concealment” inherently carried with it theelement of mens rea. Therefore, the mere fact that some figure or someparticulars have been disclosed by itself, even if takes out the casefrom the purview of non-disclosure, it cannot by itself take out the casefrom the purview of furnishing inaccurate particulars. Mere omissionfrom the return of an item of receipt does neither amount toconcealment nor deliberate furnishing of inaccurate particulars ofincome unless and until there is some evidence to show or somecircumstances found from which it can be gathered that the omissionwas attributable to an intention or desire in the part of the assessee tohide or conceal the income so as to avoid the imposition of tax thereon.In order that a penalty under Section 271(1)(iii) may be imposed it hasto be proved that the assessee has consciously made the concealmentor furnished inaccurate particulars of his income. Where the additionsmade in the assessment order, on the basis of which penalty forconcealment was levied, are deleted, there remains no basis at all forlevying the penalty for concealment and, therefore, in such a case nosuch penalty can survive and the same is liable to be cancelled as inthe instant case. Ordinarily, penalty cannot stand if the assessmentitself is set aside. Where an order of assessment or reassessment onthe basis of which penalty has been levied on the assessee has itselfbeen finally set aside or cancelled by the Tribunal or otherwise, thepenalty cannot stand by itself and the same is liable to be cancelled asin the instant case ordered by the Tribunal and later cancellation ofpenalty by the authorities. 17. Section 276C of the Act deals with wilful attempt to evadetax, etc. Section 277 deals with false statement in verification, etc. and Section 278B deals with the offences by companies. 26. The above Judgment squarely applies to the facts andcircumstances of the case on hand. In this case also, similarly, theapplication was moved by the assessee before the Magistrate to dropthe criminal proceedings which were dismissed by the Magistrate andthe High Court also on a petition filed under Sections 397 and 401 ofthe Code of Criminal Procedure, 1973 to revise the order of theAdditional Chief Metropolitan Magistrate has also dismissed the sameand refused to refer to the order passed by the competent Tribunal. Asheld by this Court, the High Court is not justified in dismissing thecriminal revision vide its Judgment ignoring the settled law as laid wonby this Court that the finding of the appellate Tribunal was conclusiveand the prosecution cannot be sustained since the penalty after havingbeen cancelled by the complainant following the appellate Tribunal’sorder, no offence survives under the Income Tax Act and thusquashing of prosecution is automatic. 27. In the instant case, the penalties levied under Section 271(1)(c) were cancelled by the respondent by giving effect to the order of theIncome Tax Appellate Tribunal in I.T.A.Nos.3129-3132.It is settledlaw that levy, of penalties and prosecution under Section 276C aresimultaneous. Hence, once the penalties are cancelled on theground that there is no concealment, the quashing of prosecutionunder Section 276C is automatic. 27. In the instant case, the penalties levied under Section 271(1)(c) were cancelled by the respondent by giving effect to the order of theIncome Tax Appellate Tribunal in I.T.A.Nos.3129-3132.It is settledlaw that levy, of penalties and prosecution under Section 276C aresimultaneous. Hence, once the penalties are cancelled on theground that there is no concealment, the quashing of prosecutionunder Section 276C is automatic. 28. In our opinion, the appellants cannot be made to suffer andface the rigorous of criminal trial when the same cannot be sustained inthe eyes of law because the entire prosecution in view of a conclusivefinding of the Income tax Tribunal that there is no concealment ofincome becomes devoid of jurisdiction and under Section 254 of theAct, a finding of the Appellate Tribunal supercedes the order of theAssessing Officer under Section 143(3) more so when the AssessingOfficer cancelled the penalty levied. 29. In our view, once the finding of concealment andsubsequent levy of penalties under Section 271(1)(c) of the Act hasbeen struck down by the Tribunal, the Assessing Officer has no otheralternative except to correct his order under Section 154 of the Act asper the directions of the Tribunal.As already noticed, the subjectmatter of the complaint before this Court is concealment ofincome arrived at on the basis of the finding of the AssessingOfficer, if the Tribunal has set aside the order of concealment andpenalties, there is no concealment in the eyes of law and,therefore, the prosecution cannot be proceeded with by thecomplainant and further proceedings will be illegal and withoutjurisdiction.The Assistant Commissioner of Income Tax cannotproceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside thelevy of penalty, the criminal proceedings against the appellants cannotsurvive for further consideration. In our view, the High Court has takenthe view that the charges have been framed and the matter is in thestage of further cross-examination and, therefore, the prosecution mayproceed with the trial. In our opinion, the view taken by the learnedMagistrate and the High Court is fallacious. In our view, if the trial isallowed to proceed further after the order of the Tribunal and theconsequent cancellation of penalty, it will be an idle and emptyformality to require the appellants to have the order of Tribunalexhibited as a defence document inasmuch as the passing of the orderas aforementioned is unsustainable and unquestionable. 30. It is a well-established principle that the matter which hasbeen adjudicated and settled by the Tribunal need not be dragged intothe criminal Courts unless and until the act of the appellants couldhave been described as culpable.” 14. Bearing in mind the above principles enunciated by the Supreme Court and inview of the submissions made by the learned senior Counsel appearing for thepetitioner, what could be stated is that continuing the criminal prosecution of thepetitioner/assessee will be subjecting the assessee to needless harassment in viewof the facts and circumstances noted hereunder:- In the instant case, for the assessment year 2005-06, as per the Assessment Order,dated 18-12-2007, the demand was NIL. The assessee paid the tax and interest ofRs.39,14,408/- by 25-11-2005 through challans - Rs.25,00,000/- on 24-11-2005,Rs.10,00,000/- on 24-11-2005 and Rs.4,14,408/- on 25-11-2005. Proof thereof isproduced. It is not disputed. In that view of the matter, all further proceedings are liable to be quashed. 15. In the result, the Criminal Petition is allowed quashing all further proceedings inC.C.No.71 of 2007 on the file of the Special Judge for Economic Offences atHyderabad against the petitioners/accused No.3 and 5. Miscellaneous petitions, if any, pending in this Criminal Petition shall stand closed. ___________________ M.S.K.Jaiswal, J October, 2015 smr