Mukesh P. Purohit v. Income Tax Officer – 18 (3)(5

SANTOSHSUBHASHKULKARNI Digitally signed bySANTOSH SUBHASHKULKARNIDate: 2024.02.0519:16:19 +0530 Santosh IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL APPLICATION NO. 165 OF 2023 1. Unique Trading Company 2. Munnidevi P. Purohit 3. Rakesh P. Purohit 4. Mukesh P. Purohit ...Applicants Versus 1. Income Tax Officer – 18 (3)(5) 2. Principal Commissioner of Income Tax-18 3. The State of Maharashtra …Respondents Mr. Sameer Dalal, i/b Satish Mody, for the Applicants. Mr. S. R. Aagarkar, APP for the State/Respondent. Mr. Siddharth Chandrashekhar, for Respondent No.2. CORAM:N. J. JAMADAR, J.RESERVED ON: 2[nd ] JANUARY, 2024PRONOUNCED ON:5[th] FEBRUARY, 2024 -JUDGMENT: 1.This is an application under Section 482 of the Code ofCriminal Procedure, 1973 (“the Code”) to quash the complaintlodged by the Income Tax Authorities for an offence punishableunder Section 276C(2) read with Section 278B of the Income TaxAct, 1961 (“the IT Act, 1961”). 2.Shorn of unnecessary details, the background facts can bestated as under: (a)Applicant No.1 is a partnership firm registered underthe provisions of Indian Partnership Act, 1932. Applicant No.1is engaged in the business of distribution of welding electrodes, 1/24 machines and accessories. Applicant Nos.2 to 4 are the partnersof applicant No.1 firm. (b)Applicant No.1 firm had filed its original return ofincome for Assessment Year (AY) 2010-2011 declaring income ofRs.21,79,850/- computing the tax payable alongwith interest atRs.7,15,573/-. Out of which Rs.1,06,512/- was claimed as TaxDeducted at Source (TDS) and Rs.1,00,000/- was paid asadvance tax. An amount of Rs.5,09,061/- was shown as taxpayable on the reported income. (c)The applicants claim, applicant No.1 firm is a familyrun concern. Mr. P. G. Purohit, the husband of applicant No.2and father of applicant Nos.3 and 4, was managing the entireaffairs of the firm. Mr. P. G. Purohit passed away in the monthof May, 2014. Applicant Nos.2 to 4 were unaware of the affairsof the firm especially the non-payment of the tax ofRs.5,09,061/- declared in the return for AY-2010-2011. The applicants claim, applicant No.1 firm is a family 3.Principal Commissioner of Income Tax, respondent No.2,issued a notice calling upon the applicant to show cause as towhy prosecution proceedings under Section 276C(2) of the ITAct, 1961 be not initiated as the applicant had allegedly wilfullyattempted to evade payment of due tax. After assessing theposition, the applicants claim, immediately on 12[th] March, 2018 the applicants paid the entire due tax including interest thereonaggregating to Rs.5,32,410/-. A reply was also filed to the showcause notice on 13[th] March, 2018 pointing out the payment ofthe aforesaid amount of Rs.5,32,410/- and also ascribing thereason for non-payment thitherto, namely, the late P. G. Purohitthen being at the helm of the affairs of the firm and theapplicants unaware thereof. 4.The applicants assert, without considering the factum ofpayment, the reason ascribed in the reply and absence of wilfulattempt to evade the payment of tax, respondent No.2 grantedsanction to prosecute the applicants for an offence punishableunder Section 276C(2) of the IT Act, 1961. The sanction isvitiated by non-application of mind. 5.Armed with the said sanction, respondent No.1 filed acomplaint for an offence punishable under Section 276C(2) readwith Section 278B of the IT Act, 1961. The learned AdditionalChief Metropolitan Magistrate, 30[th] Court Ballard Pier, issuedprocess against the applicants for an offence punishable underSection 276C(2) read with Section 278B of the IT Act, 1961. 6.The applicants aver prosecution of the applicants for thealleged offence punishable under Section 276(2) of the IT Act,1961 is an abuse of the process of the Court. Even if the case of 5.Armed with the said sanction, respondent No.1 filed acomplaint for an offence punishable under Section 276C(2) readwith Section 278B of the IT Act, 1961. The learned AdditionalChief Metropolitan Magistrate, 30[th] Court Ballard Pier, issuedprocess against the applicants for an offence punishable underSection 276C(2) read with Section 278B of the IT Act, 1961. 6.The applicants aver prosecution of the applicants for thealleged offence punishable under Section 276(2) of the IT Act,1961 is an abuse of the process of the Court. Even if the case of the Income Tax Department, as set out in the complaint, istaken at its face value, no offence under Section 276C(2) of theIT Act, 1961 can be said to have been made out. In substance,it is the contention of the applicants that there was no wilfulattempt to evade the tax on the part of the applicants. Underfour days of the service of the show cause, the applicantsdeposited the due tax and interest thereon. Subsequently, theapplicants have also deposited a sum of Rs.4,47,220/- towardsinterest for AY-2010-2011 under Section 220 of the IT Act, 1961,on 23[rd] January, 2020. Since applicant No.1 firm had faithfullydisclosed the income and the tax which was payable thereonand the due tax alongwith interest came to be paid immediatelyafter service of the show cause notice, the non-payment cannotbe construed as a wilful attempt to evade the payment of tax, tofall within the mischief of Section 276C(2) of the IT Act, 1961.Hence, the applicants were constrained to invoke the inherentjurisdiction of this Court. 7.An affidavit-in-reply is filed on behalf of respondent Nos.1and 2 controverting the contentions in the application. At theoutset, respondent Nos.1 and 2 contend that the claim of theapplicants that applicant Nos.2 to 4 were unaware of the affairsof the firm as late P. G. Purohit was managing the entire affairs -APL165-2023.DOC is patently incorrect. In fact, the ITR filed on 28[th] September,2019 was signed and verified by Mr. Rakesh Purohit, applicantNo.3. Thus, the applicants cannot feign ignorance. 8.The respondents further contend that it was only after theservice of the show cause notice the applicants paid the taxwhich was shown to be payable in the ITR for AY-2010-2011.Had the applicants paid the tax suo motu, differentconsiderations would have come into play. Therefore, theapplicants cannot derive mileage from the factum of payment ofthe tax after service of the show cause notice, in the year 2018.On the contrary, according to respondent Nos.1 and 2, the saidfact points to the wilful evasion of tax. 9.Respondent Nos.1 and 2 have also refuted the assertionsof the applicants that mere failure to pay the tax does notamount to a wilful attempt to evade the tax. In any event,according to respondent Nos.1 and 2, the aspect of the intent onthe part of the applicants in the non-payment of the tax is amatter for trial. Therefore, at this stage, a legitimate prosecutioncannot be interdicted. 10.In the wake of the aforesaid pleadings, I have heard Mr.Sameer Dalal, the learned Counsel for the applicants, Mr.Chandrashekhar, the learned Counsel for respondent Nos.1 and 2 and Mr. Aagarkar, the learned APP for the State – respondentNo.3. With the assistance of the learned Counsel for the parties,I have also perused the material on record especially the ITR forAY-2010-2011, show cause notice, reply thereto, order ofsanction and the complaint lodged by respondent No.1. 10.In the wake of the aforesaid pleadings, I have heard Mr.Sameer Dalal, the learned Counsel for the applicants, Mr.Chandrashekhar, the learned Counsel for respondent Nos.1 and 2 and Mr. Aagarkar, the learned APP for the State – respondentNo.3. With the assistance of the learned Counsel for the parties,I have also perused the material on record especially the ITR forAY-2010-2011, show cause notice, reply thereto, order ofsanction and the complaint lodged by respondent No.1. 11.Mr. Dalal, the learned Counsel for the applicant,submitted that the order passed by respondent No.2 grantingsanction for prosecution suffers from the vice of complete non-application of mind. Despite having noted that the applicantshad paid the entire tax due upon being served with the notice,respondent No.2 unjustifiably observed that the applicants hadmade a wilful attempt to evade the tax. Respondent No.2 clearlylost sight of the fact that the applicants had disclosed theincome and also computed the self-assessment tax which was tobe paid. Mere failure to pay the tax due by itself cannot beconstrued as a wilful attempt to evade the tax. Absence of themens rea to evade the payment of tax was not at all consideredby respondent No.2. 12.Mr. Dalal submitted that by catena of decisions it has beenheld that there is a distinction between a mere failure to pay thetax due and wilful attempt to evade the tax, which requires apositive act on the part of the assessee. To bolster up this 6/24 -APL165-2023.DOC submission, the learned Counsel for the applicants placedreliance on the decision of the Supreme Court in the case ofPrem Dass vs. Income Tax Officer[1], a decision of Karnataka HighCourt in the case of Vyalikaval House Building Co-operativeSociety Ltd & ors. vs. Deputy Commissioner of Income Tax[2], adecision of the Madras High Court in the case of S. P.Velayutham vs. Assistant Commissioner of Income Tax[3],adecision of Gujarat High Court in the case of Ganga DeviSomani & ors. vs. State of Gujarat[4]and another decision ofMadras High Court in the case of Bejan Singh Eye Hospital Pvt.Ltd. and ors. vs. Income Tax Department[5]. 13.Per contra, Mr. Chandrashekhar, the learned Counsel forrespondent No.2, would submit that the time-lag of more thaneight years in making the payment in itself speaks volumesabout the intent on the part of the applicants to evade the tax.It is only after the service of the show cause notice, theapplicants paid the amount of self-assessment tax. Theapplicants, therefore, cannot be heard to urge that there was nowilful attempt at evasion of the tax. 1(1999) 5 SCC 241. 2(2020) 428 ITR 89 (Karn.). 3(2022) 327 CTR (Mad). 4(2021) 321 CRT (Guj) 640. 5(2020) 428 ITR 206 (Mad). -APL165-2023.DOC 14.Taking the Court through the provisions of sub-sections(1) and (2) of Section 276C of the IT Act, 1961 and comparingand contrasting the text thereof, the learned Counsel forrespondent No.2 submitted that the legislature has consciouslyused different language to prescribe punishment in the matterof wilful evasion of tax chargeable and imposable, i.e. beforefiling of return, and wilful evasion of payment of tax, i.e. afterfiling of the return. The evasion of payment of self-assessmenttax by the applicants squarely falls within the dragnet of theoffence punishable under Section 276C(2) of the Act, 1961 as aclear case of deliberate evasion for eight long years has beenmade out. 15.Mr. Chandrashekhar placed reliance on a decision of thisCourt in the case of Nayan Jayantilal Balu vs. Union of Indiaand ors.[6],wherein a Division Bench of this Court declined tointerfere with an order sanctioning prosecution and theconsequent complaint under Section 276C(1) of the IT Act, 1961,opining that prima facie the ingredients of the said offence weremade out and the veracity or otherwise of the allegationscontained therein can only be decided at the stage of trial. 15.Mr. Chandrashekhar placed reliance on a decision of thisCourt in the case of Nayan Jayantilal Balu vs. Union of Indiaand ors.[6],wherein a Division Bench of this Court declined tointerfere with an order sanctioning prosecution and theconsequent complaint under Section 276C(1) of the IT Act, 1961,opining that prima facie the ingredients of the said offence weremade out and the veracity or otherwise of the allegationscontained therein can only be decided at the stage of trial. 16.To start with, it may be apposite to note the provisionscontained in Section 276C of the IT Act, 1961. Section 276C issubsumed in Chapter XXI under caption ‘Penalties Imposable’. It reads as under: “276C. (1) If a person wilfully attempts in any mannerwhatsoever to evade any tax, penalty or interest chargeableor [imposable, or under reports his income,] under this Act,he shall, without prejudice to any penalty that may beimposable on him under any other provision of this Act, bepunishable,– (i)in a case where the amount sought to be evaded[or tax on under- reported income] exceeds [twenty-five]hundredthousandrupees,withrigorousimprisonment for a term which shall not be less thansix months but which may extend to seven years andwith fine; (ii) in any other case, with rigorous imprisonmentfor a term which shall not be less than three monthsbut which may extend to [two] years and with fine.(2) If a person wilfully attempts in any manner whatsoeverto evade the payment of any tax, penalty or interest underthis Act, he shall, without prejudice to any penalty that maybe imposable on him under any other provision of this Act,be punishable with rigorous imprisonment for a term whichshall not be less than three months but which may extendto [two] years and shall, in the discretion of the court, alsobe liable to fine. Explanation.– For the purposes of this sections, a wilfulattempt to evade any tax, penalty or interest chargeable orimosable under this Act or the payment thereof shallinclude a case where any person– (i) has in his possession or control any books ofaccount or other documents (being books of account orother documents relevant to any proceeding under thisAct) containing a false entry or statement; or (ii) makes or causes to be made any false entry orstatement in such books of account or otherdocuments; or (iii)wilfully omits or causes to be omitted anyrelevant entry or statement in such books of accountor other documents; or (iv)causes any other circumstances to exist whichwill have the effect of enabling such person to evadeany tax, penalty or interest chargeable or imposableunder this Act or the payment thereof.]. 17.On a plain reading of sub-section (1) and (2) of Section276C, the distinction between two sub-sections becomesevidently clear. While sub-section (1) of Section 276C deals withwilful attempt to evade any tax penalty or interest chargeable orimposableor under reporting of income, sub-section (2) ofSection 276C punishes wilful attempt to evade the payment ofany tax, penalty or interest. Evidently, sub-sections (1) and (2)of Section 276C operate in different spheres. However, thelinchpin of the offences covered by sub-section (1) as well assub-section (2) of Section 276 is, “wilful attempt to evade”. TheExplanation to Section 276C by way of illustration provides thethe kinds of acts which may amount to wilful attempt to evadetax. Undoubtedly, the Explanation is inclusive and, therefore,there can be a wilful attempt to evade tax in any other mannernot expressly referred to in the Explanation. Nonetheless, theillustrations adverted to in the Explanation emphasise aconscious act or omission on the part of the assessee with adesign to evade the tax. 18.The moot question that wrenches to the fore is, “whether afailure to pay any tax, interest or penalty can be construed as awilful attempt to evade tax, interest or penalty, without anythingmore? 18.The moot question that wrenches to the fore is, “whether afailure to pay any tax, interest or penalty can be construed as awilful attempt to evade tax, interest or penalty, without anythingmore? 19.The text of sub-section (2) of Section 276C is required tobe construed keeping in view its evident nature and purportbeing penal. A penal statute is required to be construed strictly.It is not open to expand the scope of the words used in a penalstatute so as to fasten liability on the persons who wouldotherwise not fall within the dragnet of the penal provision.Undoubtedly, the object of the penal provision cannot be lostsight of and it must be construed in such a manner as toadvance the object of the enactment. In substance, both thetext and the context deserve to be taken into account. 20.As noted above, the key phrase in sub-sections (1) and (2)of Section 276C is “wilful attempt to evade”. When theexpression wilful is used in a penal statute it is generallyconstrued to bring in its trail the element of a mental state. Inthe Black’s Law Dictionary, Eighth Edition, the term ‘wilful’ isexplained as under: “wilful, adj. Voluntary and intentional, but not necessarilymalicious. — Sometimes spelled wilful. Cf. WANTON. —wilfulness, n. “The word ‘wilful’ or ‘wilfully’ when used in the definition of acrime, it has been said time and again, means onlyintentionally or purposely as distinguished from accidentallyor negligently and does not require any actual im-propriety;while on the other hand it has been stated with equalrepetition and insistence that the requirement added by sucha word is not satisfied unless there is a bad purpose or evilintent.” Rollin M. Perkins & Ronald N. Boyce, Criminal Law875–76 (3d ed. 1982).” 21.In P. Ramnatha Aiyar’s Advanced Law Lexicon, 3[rd] Edition, after noting the aforesaid explanation in the Black’s LawDictionary, the import of the term in civil and criminal causes iselucidated as under: “The question whether an act or omission is wilful arisesoftener in criminal than in civil causes; since in the formerthe general principle requiring the presence of mens reaexcludes from criminality acts done accidentally andunintentionally and even acts done intentionally underhonest but mistaken belief in the existence of facts which, if”true, would have made the acts lawful or excusable. (emphasis supplied) 22.In the case of Kapildeo Prasad Sah vs. State of Bihar[7]inthe context of civil contempt, the Supreme Court enunciated theword ‘wilful’ would exclude casual, accidental, bona fide orunintentional acts or genuine inability to comply with the termsof the order. 23.It would be contextually relevant to note what the term “toevade” or “evasion” implies. 24.In Black’s Law Dictionary, ‘tax evasion’, is defined as awilful attempt to defeat or circumvent the tax law in order toillegally reduce one’s tax liability. In P. Ramnathan Law Lexicon, the word “evade” is defined as under:- “Evade.To avoid by some dexterity; by some device orstratagem; to elude: to escape (as) to evade a blow; to evadepunishment; to evade the force of an argument.” 25.In the context of the payment of duty as enunciated by theSupreme Court in the case of Tamil Nadu Housing Board vs.CCE[8], the word ‘evade’ means defeating the provisions of law ofpaying duty. In substance, evasion of tax means illegal non-payment of tax as due. 26.If the aforesaid two expressions, “wilful attempt” and “toevade” are read in conjunction, to fall within the tentacles ofSection 276C(2) the act or omission ought to constitute a wilfulattempt with a design to defeat the liability to pay tax. “Attempt”in turn, means an act or an instance of making an effort toaccomplish something. In criminal law an attempt connotes anovert act that is done with the intent to commit a crime but thatfalls short of completing the crime. It is an inchoate offensewhich is distinct from the attempted crime. 25.In the context of the payment of duty as enunciated by theSupreme Court in the case of Tamil Nadu Housing Board vs.CCE[8], the word ‘evade’ means defeating the provisions of law ofpaying duty. In substance, evasion of tax means illegal non-payment of tax as due. 26.If the aforesaid two expressions, “wilful attempt” and “toevade” are read in conjunction, to fall within the tentacles ofSection 276C(2) the act or omission ought to constitute a wilfulattempt with a design to defeat the liability to pay tax. “Attempt”in turn, means an act or an instance of making an effort toaccomplish something. In criminal law an attempt connotes anovert act that is done with the intent to commit a crime but thatfalls short of completing the crime. It is an inchoate offensewhich is distinct from the attempted crime. 27.In the backdrop of the aforesaid juridical connotation ofthe key words used in Section 276C(1) and (2) of the IT Act,1961, a reference to the judgments, which bear upon thedetermination of the controversy, may become advantageous. 28.In the case of Prem Dass (supra) the appellant therein wasconvicted under Section 276C(1) of the Act, 1961 on a complaintby the Tax Authorities that the appellant had incorrectly made averification on the Income Tax Return. The learned Magistrateconvicted the appellant; which order was set aside by the Courtof Session. In appeal against acquittal, the High Court waspersuaded to set aside the order of acquittal and convict theappellant. 29.In the aforesaid factual background, after adverting toprovisions contained in Section 276C(1) and Section 277 (falsestatement in verification etc.) of the IT Act, 1961, the SupremeCourt enunciated that wilful attempt to evade any tax, penaltyor interest chargeable or imposable under Section 276C is apositive act on the part of the accused which is required tobring home the charge against the accused. Similarly, astatement made by a person in any clarification under the Actcan be an offence under Section 277 if the person making thesame effort knew or believed the same to be false or does not believe it to be true. Necessary mens rea, therefore, is requiredto be established by the prosecution to attract the provisions ofSection 277 of the Act. 30.Following the aforesaid pronouncement, a learned Single Judge of the Karnataka High Court in the case of VyalikavalHouse Building Co-operative Society Ltd. (supra) enunciated thelaw as under: “8.The gist of the offence under Section 276C(2) of the Actis the wilful attempt to evade any tax, penalty or interestchargeable or imposable under the Act. What is madepunishable under this Section is an "attempt to evade taxpenalty or interest" and not the actual evasion of tax.'Attempt' is nowhere defined in the Act or in the IndianPenal Code. In legal echelons 'attempt' is understood as a"movement towards the commission of the intended crime".It is doing "something in the direction of commission ofoffence". Viewed in that sense, in order to render theaccused guilty of "attempt to evade tax" it must be shownthat he has done some positive act with an intention toevade tax. “8.The gist of the offence under Section 276C(2) of the Actis the wilful attempt to evade any tax, penalty or interestchargeable or imposable under the Act. What is madepunishable under this Section is an "attempt to evade taxpenalty or interest" and not the actual evasion of tax.'Attempt' is nowhere defined in the Act or in the IndianPenal Code. In legal echelons 'attempt' is understood as a"movement towards the commission of the intended crime".It is doing "something in the direction of commission ofoffence". Viewed in that sense, in order to render theaccused guilty of "attempt to evade tax" it must be shownthat he has done some positive act with an intention toevade tax. 9. In the instant case, the only circumstance relied on bythe respondent in support of the charge levelled against thepetitioners is that, even though accused fled the returns,-yet, it failed to pay the selfassessment tax along with thereturns. This circumstance even if accepted as true, thesame does not constitute the offence under Section 276C (2)of the Act. The act of fling the returns by itself cannot beconstrued as an attempt to evade tax, rather the submissionof the returns would suggest that petitioner No.1 hadvoluntarily declared his intention to pay tax. The act ofsubmitting returns is not connected with the evasion of tax.It is only an act which is closely connected with theintended crime, that can be construed as an act in attemptof the intended offence. In the backdrop of this legalprinciple, the Hon'ble Supreme Court in the case of PremDass - vs - Income Tax Officer cited supra, has held that apositive act on the part of the accused is required to beestablished to bring home the charge against the accusedfor the offence under Section 276C(2) of the Act. 10. In the case on hand, conduct of petitioner No.1 makingpayments in terms of the returns fled by him, though delayed and made after coercive steps were taken by theDepartment do not lead to the inference that the saidpayments were made in an attempt to evade tax declared inthe returns fled by him. Delayed payments, under theprovisions of the Act, may call for imposition of penalty orinterest, but by no stretch of imagination, the delay inpayment could be construed as an attempt to evade tax soas to entail prosecution of the petitioners for the allegedoffence under Section 276C(2) of the Act. In that view of thematter, the prosecution initiated against the petitioners, inmy considered opinion, is illegal and tantamount to abuseof process of Court and is liable to be quashed.” (emphasis supplied) 31.To the same effect is the decision of the Madras HighCourt in the case of Mrs. Noorjahan vs. Deputy Commissionerof Income Tax[9].Repelling the submissions that presumptioncontained in Section 278B of the IT Act, 1961 comes to the aidof the prosecution, the learned Single Judge, in the facts of thesaid case, observed as under: 13. In the instant case, admittedly there is no concealmentof any source of income or taxable item, inclusion of acircumstance aimed to evade tax or furnishing of inaccurateparticulars regarding any assessment or payment of tax.What is involved is only a failure on the part of thepetitioner to pay the tax in time, which was later on paidafter 4½ months along with interest payable. So, it wouldnot fall under the mischief of Section 276 C of the IncomeTax Act, which requires an attempt to evade tax and suchattempt must be a wilful. 13. In the instant case, admittedly there is no concealmentof any source of income or taxable item, inclusion of acircumstance aimed to evade tax or furnishing of inaccurateparticulars regarding any assessment or payment of tax.What is involved is only a failure on the part of thepetitioner to pay the tax in time, which was later on paidafter 4½ months along with interest payable. So, it wouldnot fall under the mischief of Section 276 C of the IncomeTax Act, which requires an attempt to evade tax and suchattempt must be a wilful. 14. If the intention (culpable mental state) of the assesseewas to evade tax or attempt to evade tax, they would nothave fled the returns in time disclosing the income and thetax liable to be paid. They would not have remitted the taxpayable along with interest without waiting for theauthorities to make demand or notice for prosecution. Thus,except a delay of 4 ½ months in payment of tax, it is clearthat there was no tax evasion or attempt to evade thepayment of tax. To invoke the deeming provision, thereshould be a default in payment of tax in true sense. Nothing can be deemed contrary to the fact borne by record. If suchdeeming fiction is applied by the authority, is has to betermed as non application of mind over the materialrecords. …... 16. A 'culpable mental state' which can be presumedunder Section 278E of the Act would come into play only ina prosecution for any offence under the Act, when the saidoffence requires a 'culpable mental state' on the part of theaccused. Section 278E of the Act is really a rule of Evidenceregarding existence of mens rea by drawing a presumptionthough rebuttable. That does not mean that, thepresumption would stand applied even in a case wherein thebasic requirements constituting the offence are notdisclosed. More particularly, when the tax is paid muchbefore the process for prosecution is set into motion. Thepresumption can be applied only when the basic ingredientwhich would constitute any offence under the Act isdisclosed. Then only, the rule of evidence under Section278E of the Act regarding rebuttable presumption as toexistence of culpable mental state on the part of accusedwould come into play. 17. When the facts on record discloses that the tax alreadypaid and no evasion of tax, no man of ordinary prudencecan presume that there is an attempt to evade tax and suchattempt is a wilful one.” (emphasis supplied) 32.In the case of S. P. Velayutham(supra), another learnedSingle Judge of Madras High Court, after noticing the decisionsholding the field, observed that the word employed in thesection namely, “wilful attempt” cannot be imported to merefailure to pay the tax. The judgment of Gujarat High Court inthe case of Ganga Devi Somani (supra) inter alia observes thatdelayed payment under the provisions of the Act may call forpenalty or interest but by no stretch of imagination (in the factsand circumstances as pleaded by the petitioners therein) could be construed as an attempt to evade tax so as to entailprosecution of the petitioner for the alleged offence underSection 276C(2) of the IT Act, 1961. 33.The decision of this Court in the case of Nayan Balu Balu(supra), on which reliance was placed by the learned Counsel forrespondent No.1, does not govern the facts of the case as in thesaid case the challenge was to the initiation of the prosecutionunder Section 276C(1) of the IT Act, 1961 as it was alleged thatthe petitioner therein failed to substantiate the claim ofpurchases as the Assessing Officer had found the purchases tobe bogus. The decision of this Court in the case of Nayan Balu Balu be construed as an attempt to evade tax so as to entailprosecution of the petitioner for the alleged offence underSection 276C(2) of the IT Act, 1961. 33.The decision of this Court in the case of Nayan Balu Balu(supra), on which reliance was placed by the learned Counsel forrespondent No.1, does not govern the facts of the case as in thesaid case the challenge was to the initiation of the prosecutionunder Section 276C(1) of the IT Act, 1961 as it was alleged thatthe petitioner therein failed to substantiate the claim ofpurchases as the Assessing Officer had found the purchases tobe bogus. The decision of this Court in the case of Nayan Balu Balu 34.A profitable reference, in this context, can be made to adecision of the Supreme Court in the case of M/s. GujaratTravancore Agency vs. Commissioner of Income Tax, Kerala,Ernakulam[10], wherein pointing out the distinction between thenature of the provisions contained in Section 271(1)(a) (failure tofurnish return) and Section 276C (as it then stood), theSupreme Court enunciated that there can be no dispute havingregard to the provisions of Section 276C, which speaks of wilfulfailure on the part of the defaulter and taking into considerationthe nature of the penalty, which is punitive, no sentence can be -APL165-2023.DOC imposed under that provision unless the element of mens rea isestablished. In most cases of criminal liability, the intention ofthe legislature is that the penalty should serve as a deterrent.The creation of an offence by statute proceeds on theassumption that society suffers injury by the act or omission ofthe defaulter and that a deterrent must be imposed todiscourage the repetition of the offence. Thus, there wasnothing in Section 271(1)(a) which required that mens rea mustbe proved before penalty can be levied under that provision. 35.In the case of Union of India and others vs. DharmendraTextile Processors and others[11], the question that arose before aThree-Judge Bench of the Supreme Court was, whether Section11-AC of the Central Excise Act, 1944 inserted by the FinanceAct, 1996 with the intention of imposing mandatory penalty onpersons who evaded payment of tax should be read to containmens rea as an essential ingredient and whether there is ascope of levying penalty below the prescribed minimum.Emphasising the element of mens rea as an essential ingredientfor fastening the criminal liability, the Supreme Court inter aliaobserved that the explanation appended to Section 271(1)(c) ofthe IT Act, 1961 clearly indicates that element of strict liability on the assessee for concealment or for giving inaccurateparticulars while filing return. 36.There was a duality of opinion in two Division Benchjudgments of the Supreme Court in the cases of Dilip N. Shroff vs. CIT [12 ]and SEBI vs. Shriram Mutual Fund[13]. While resolvingthe conflict, the Supreme Court in the case of DharmendraTextile Processors (supra) enunciated as under: “17.It is of significance to note that the conceptual andcontextual difference between Section 271(1) (c) and Section276C of the IT Act was lost sight of in Dilip Shroff's case(supra). 18. The Explanations appended to Section 272(1)(c) of the ITAct entirely indicates the element of strict liability on theassessee for concealment or for giving inaccurate particularswhile filing return. The judgment in Dilp N. Shroof's case(supra) has not considered the effect and relevance ofSection 276C of the I.T. Act. Object behind enactment ofSection 271 (1)(e) read with Explanations indicate that thesaid section has been enacted to provide for a remedy forloss of revenue. The penalty under that provision is a civilliability. Wilful concealment is not an essential ingredient forattracting civil liability as is the case in the matter ofprosecution under Section 276C of the I.T. Act.” (emphasis supplied) 37.The aforesaid pronouncements thus indicate that there is 18. The Explanations appended to Section 272(1)(c) of the ITAct entirely indicates the element of strict liability on theassessee for concealment or for giving inaccurate particularswhile filing return. The judgment in Dilp N. Shroof's case(supra) has not considered the effect and relevance ofSection 276C of the I.T. Act. Object behind enactment ofSection 271 (1)(e) read with Explanations indicate that thesaid section has been enacted to provide for a remedy forloss of revenue. The penalty under that provision is a civilliability. Wilful concealment is not an essential ingredient forattracting civil liability as is the case in the matter ofprosecution under Section 276C of the I.T. Act.” (emphasis supplied) 37.The aforesaid pronouncements thus indicate that there is an essential distinction between the cases where failure orbreach leads to civil liability, even in the nature of imposition ofmonetary penalty, and the cases which entail punishment as asequel to the commission of offences. Ordinarily in the cases 12(2007) 6 SCC 329. 13(2006) 5 SCC 361 where the breach or failure leads to civil liability, mens rea is notconsidered as an essential ingredient and proof of mere failureor breach in itself may be sufficient. In contrast, where thepunishment is to be imposed, existence of mens rea is ordinarilyconsidered as an essential ingredient of the offence, save andexcept the cases where the punishment is imposed on theprinciple of strict liability. 38.From the text of the provisions contained in Section276C(1) and the use of the expressions, “wilful attempt” “toevade” it becomes clear that Section 276C professes to punishan act or omission on the part of the assessee designed to evadethe liability to pay the tax and not a “mere failure” to pay thetax. There are provisions in the Income Tax Act, 1961 whichtake care of interest (of the revenue) of recovering the due taxamount alongwith interest and/or penalty where the tax has notbeen paid within time. It is the wilful evasion of tax due whichis the crux of the offence under Section 276C(2) and not a merefailure to pay tax. 39.The matter can be looked at from a slightly differentperspective. The sections which precede Section 276C deserve tobe noted. Section 276B punishes failure to pay tax to the creditof the Central Government, which has been deducted at sourceunder Chapter XVIIB or the tax payable under Section 115-O or21/24 the second proviso to Section 194B. Likewise, Section 276BBprovides punishment for failure to pay to the credit of theCentral Government, the tax collected by a person as requiredunder the provisions of Section 206C. Under these twosections, it is the act of mere failure to credit the tax, which hasalready been collected or deducted that entails punishment.The text of Section 276, on the other hand, professes to punishwilful attempt to evade payment of tax interest or penalty. 40.In a given case, if it could be demonstrated that thoughthe assessee was in a position to pay tax, interest on penalty,the assessee evaded payment of tax by dishonestly disablinghimself from payment of tax, interest or penalty or fraudulentlydealt with his assets or property with intent to evade thepayment of tax, interest or penalty, different considerations maycome into play. However, mere failure cannot be equated withwilful attempt to evade. 41.To sum up, on a plain reading the provisions contained inSection 276C(2) do not indicate that mere failure to pay the tax,interest or penalty falls within the dragnet of the said provision.Even otherwise, it is a well settled rule of construction of penalstatutes that if two possible and reasonable constructions canbe put upon a penal provision, the Court must lean towardsthat construction which exempts the subject from penalty22/24 rather than the one which imposes penalty. (Tolaram Relumaland another vs. State of Bombay[14]) rather than the one which imposes penalty. (Tolaram Relumaland another vs. State of Bombay[14]) 42.On the aforesaid touchstone, reverting to the facts of thecase, there is material to indicate that within five days of theshow cause notice the applicants had deposited the tax due asdeclared in the return for AY-2010-2011. Since the applicantshad declared the income and assessed the self-assessment tax,it cannot be urged that there was an attempt to evade the tax. Itwas neither a case of under reporting of income nor that ofshowing diminished tax liability. The action on the part of theapplicants to pay the tax due under five days of the noticemilitates against the stand of the Income Tax Department thatthere was an intent to evade the tax throughout. It is notdisputed on the date of the lodging of the complaint, no tax wasdue, and even the applicants deposited the amount ofRs.4,47,420/- towards interest on the due amount. 43.In the aforesaid view of the matter, I find substance in thesubmissions on behalf of the applicants that in the facts of thecase the continuation of the prosecution for the offencepunishable under Section 276C(2) of the IT Act, 1961 amountsto abuse of the process of the Court. It is true there was delay ofabout eight years in paying the amount of self-assessment tax.14AIR 1956 SC 496. -APL165-2023.DOC In this proceeding, it may not be appropriate to delve into theveracity of the claim of the applicants that on account of deathof Mr. P. G. Purohit they were unaware of the tax liability. It isthe conduct of the applicant, after being served with the showcause notice, that assumes significance. Payment of tax dueunder five days of the service of the show cause notice,underscores the bona fide of the applicants. Thus, the aspect ofdelay, which was forcefully canvassed on behalf of respondentNo.2, does not detract materially from the applicants claim. 44.In the totality of the circumstances, the offence punishableunder Section 276C(2) of the Act, 1961 cannot be said to havebeen made out. 45.For the foregoing reasons, I am inclined to allow theapplication. Hence, the following order: : O R D E R : (i)The application stands allowed in terms of prayer Clause(a). (a). (ii)The proceedings in Criminal Case No.1195/SW/2018pending on the file of the learned Additional ChiefMetropolitan Magistrate, Ballard Peer Court, Mumbai,(now transferred to the Court at Mazgaon), standquashed and set aside, pending on the file of the learned Additional ChiefMetropolitan Magistrate, Ballard Peer Court, Mumbai,(now transferred to the Court at Mazgaon), standquashed and set aside, (iii)Application stands disposed. No costs. No costs. [N. J. JAMADAR, J.]