Shri.k.e.gnanavel Raja v. The Assistant Commissioner Of Income Taxcentral Circle-1(2),Investigation Wing, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE M.NIRMAL KUMAR Shri.K.E.Gnanavel Raja ... Petitioner in both cases Vs. The Assistant Commissioner of Income TaxCentral Circle-1(2),Investigation Wing, Room No.311,No.46, M.G.Road,Chennai-600 034.... Respondent in both cases COMMON PRAYER: Criminal Original Petitions are filed underSection 482 of the Code of Criminal Procedure, to quash thecomplaints in E.O.C.C.No.582 & 583 of 2017 on the file ofAdditional Chief Metropolitan Magistrate, Economic Offences –II, Egmore, Chennai. For Petitioner:Mr.T.Vasudevan For Respondent: Ms.M.Sheela,Special Public Prosecutor forIncome Tax Department COMMON ORDER Criminal Original Petitions have been filed to quash theproceedings in E.O.C.C.Nos.582 & 583 of 2017, pending on thefile of the Additional Chief Metropolitan Magistrate Court,Economic Offence – II, Egmore, Chennai/trial Court. 2.Since the petitioner and the respondent are one and theissues are identical in both the petitions, this Court decidesto dispose of the same, by way of common order. 3.Gist of the case in E.O.C.C.No.582 of 2017 is that thepetitioner in his Income Tax Return for the Assessment Year2007-08 admits a loss of Rs.2,87,82,522/-. The respondentconducted search and seizure operation under Section 132 of the Income Tax Act, 1961 (Hereinafter referred to as 'Act') on29.01.2010. During the course of search operation, it was foundthat the petitioner was not maintaining proper and completebooks of account for his business. Consequently, a notice underSection 153A of the Act was issued to the petitioner for theAssessment Year 2007-08 on 09.03.2011. In response to thenotice under Section 153A of the Act, the petitioner filed hisincome tax return on 14.12.2011 admitting a total loss ofRs.1,38,26,780/-. Thus, the loss admitted by the petitioner inhis original return filed on 31.10.2007 was Rs.2,87,82,522/-.But in the return filed on 14.12.2011 in response to noticeunder Section 153A of the Act was Rs.1,38,26,780/-. If a searchunder Section 132 of the Act was not conducted, the petitionerwould not have come forward to offer additional income in therevised return. It is further alleged in the complaint that inaccordance with the provision of Section 40(A)(3) of the Act, asum of Rs.24,15,218 was disallowed. Accordingly, an order underSection 143(3) of the Act was passed on 30.12.2011 determiningthe total income at Rs.1,14,11,562/- after making an addition ofRs.24,15,218/-. The Assessing Officer simultaneously initiatedpenalty proceedings under Section 271(1)(c) of the Act andpassed an order, dated 29.06.2012, levying penalty ofRs.31,30,000/- under Section 271(1)(c) of the Act. Thepetitioner contested the levy of penalty before the CIT(A)(c)-IIand the CIT(A) vide order, dated 29.03.2014 in ITA.No.57/12-13dismissed the appeal and upheld the action of Assessing Officer.Therefore, the petitioner paid the penalty on 23.06.2014. 4.Gist of the case in C.C.No.583 of 2017 is that thepetitioner filed his return of income for the Assessment Year2008-09 admitting a total income of Rs.31,31,710/- after settingoff of brought forward business loss of Rs.2,86,23,462/- relatedto the Assessment year 2007-08. During the search and seizureoperation under Section 132 of the Act, it was found that thepetitioner not maintained proper and complete books of accountfor his business. Hence, a notice under Section 153A of the Actwas issued to the petitioner for the Assessment Year 2008-09 on09.03.2011. In response to the notice, the petitioner filed hisreturn of income for the Assessment Year 2008-09 on 14.12.2011admitting a total loss of Rs.1,27,22,437/- after setting off ofbrought forward business loss of Rs.1,38,26,780/-. Thus, theloss admitted by the petitioner in his original return filed on29.09.2008 was Rs.2,86,23,462/-. But in the return filed on14.12.2011 in response to the notice under Section 153A of theAct, the business loss was Rs.1,38,26,780/-. Similarly the netprofit also increased from Rs.2,38,14,396/- to Rs.2,63,23,846/-.The Assessing Officer passed penalty order under Section 271(1)(c) and 271A of the Act, dated 28.06.2012 levying minimumpenalty of Rs.9,29,566/-. The petitioner contested the levy ofpenalty before the CIT(A)(C)-II and the CIT(A) vide order, dated 28.02.2014 in ITA.No.60/12-13, dated 28.02.2014 dismissed theappeal and upheld the action of Assessing Officer levyingpenalty. The petitioner paid the penalty amount ofRs.9,29,566/- on 23.04.2014. 5.Since the reply was not convincing and acceptable, thesanction for prosecution obtained and the prosecution waslaunched against the petitioner for the Assessment Years 2007-08and 2008-09 and the complaints were filed before the trial Court. 6.The learned counsel for the petitioner submitted that thepenalty was levied on the petitioner for not maintaining properbooks of account and the business loss was also upheld in theorder of the Commissioner of Income Tax Appeals. He furthersubmitted that there was no tax due payable by the petitionerand the penalty was confirmed by the Commissioner of Income TaxAppeals on account of non-maintenance of proper books of accountas the expenditure could not be verified and it is pertinent tonote that there was no tax chargeable or payable in theAssessment Proceedings by the Assessing Officer or in theAppeals and there was no evasion of tax. He further submittedthat the difference in loss was purely on account ofdisallowance of expenditures, for which, the receipts could notbe verified with the books of account and the penalty levied wasnot for any wilful attempt to evade tax or interest. He furthersubmitted that after three years of payment of penalty, theAssessment Proceedings attained the finality and penalty paid inthe year 2014. While that being so, the cases proceedingagainst the petitioner are unwarranted. 7.He further submitted that the gist of the offence underSection 276C(1) of the Act is the wilful attempt to evade anytax, penalty or interest chargeable or imposable or underreports of the income. What is made punishable is “attempt toevade tax, penalty or interest” and not the “actual evasion ofthe tax”. In the case of “Prem Dass Versus Income Tax Officerreported in (1999) 5 SCC 241”, the Hon'ble Apex Court had heldthat to bring a person to show he evaded tax, it must be shownthat the person had done some positive act with an intention toevade any tax or interest. In this case, no such averments ismade out against the petitioner. Mere omission and negligence,cannot be construed as an offence. It is a well-establishedprinciple that there has to be some mensrea on part of theaccused and there should be some amount of tax which was soughtto be evaded or concealed or deliberate intention to have filedfalse returns to evade taxes. In the case of the petitioner,there is no income and only loss and there is no tax due. 8.In support of his submissions, the learned counsel forthe petitioner relied on the decisions of this Court in the case of “Sivakumar Ragavan Versus DCIT in Crl.O.P.No.8930 & 8931 of2018, dated 11.08.2021” and “Inland Builders Versus DCIT inCrl.O.P.No.6244 of 2020, dated 25.08.2020”, wherein this Courtquashed the complaint on the ground that when the entireliability stood discharged, the prosecution could not continue.Hence, he prayed for quashing of the proceedings against thepetitioner. 9.Ms.M.Sheela, learned Special Public Prosecutor for IncomeTax Department, appearing for the respondent submitted thatafter obtaining the sanction for prosecution from the concernedauthority on 20.09.2017, the complaints filed under Section 276(c)(1) and 277 of the Act, against the petitioner. Thepetitioner for the Assessment Years 2007-08 and 2008-09 havefiled his Income Tax Return admitting a loss, which could not becorroborated and sustained in view of the petitioner notmaintaining the books of account for his business. Therespondent conducted search operation. During search, availabledocuments were seized, which could not be corroborated with theIncome Tax Returns filed earlier. Thereafter, Assessment hasbeen done and the loss shown was re-calculated with lesseramount, which was admitted and penalty paid. In suchcircumstances, show cause notice was issued to the petitioner tolaunch prosecution against the petitioner. Since the reasongiven by the petitioner in his reply is not justifiable and notproper, the above complaints filed against him. She furthersubmitted that the petitioner filed his Income Tax Returns forthe said Assessment Years suppressing the true particulars andlater revised returns were filed. The points raised by thepetitioner are factual in nature and that has to be decided onlyduring trial and not in these Quash Petitions. The petitionerwould not absolve from the case citing that he paid the penaltyimposed by the Income Tax Department. Hence, he prayed fordismissal of these petitions. 10.This Court considered the rival submissions and perusedthe materials available on record. 11.It is seen that the gravamen of allegation against thepetitioner is that the petitioner filed incorrect Income TaxReturns declining loss of business. During search, somedocuments were seized by the respondent. On verification, itwas found that the loss accounted was not corroborated with thebooks of account and also found that the books of account of hisbusiness were not properly maintained by the petitioner. Onassessment of notice, the petitioner filed revised Income TaxReturns and also paid the penalty. The deletions made in theassessment was purely on the basis of difference of opinion asto the estimates and not a case of concealment of income or evenfurnishing of inaccurate particulars of income. To attract the 11.It is seen that the gravamen of allegation against thepetitioner is that the petitioner filed incorrect Income TaxReturns declining loss of business. During search, somedocuments were seized by the respondent. On verification, itwas found that the loss accounted was not corroborated with thebooks of account and also found that the books of account of hisbusiness were not properly maintained by the petitioner. Onassessment of notice, the petitioner filed revised Income TaxReturns and also paid the penalty. The deletions made in theassessment was purely on the basis of difference of opinion asto the estimates and not a case of concealment of income or evenfurnishing of inaccurate particulars of income. To attract the provisions of Section 276C of the Act, the prosecution has toestablish that the accused willfully attempted in any manner toevade any tax, penalty or interest chargeable or imposable underthe Act. To attract the provisions of Section 277 of the Act,the prosecution is required to establish that the accused made astatement in any verification under the Act, which he eitherknows or believes to be false, or does not believe to be true. 12.The presumption under Section 132(4)(a) of the Act iswith regard to the books of account or the other documents foundin possession of a person from whom it is seized. The samepresumption shall not apply for offence, under Section 276(c)and 277 of the Act. 13.On the facts of the case, it is seen that there is noact of concealment on the part of the assessee. The gravamen ofindictment relates to filing of incorrect return and makingwrong verification of the statements filed in support of thereturn, resulting in initiation of penalty proceedings.Admittedly, in this case, it is only wrong calculation of theloss sustained in his business, which is not supported by thebooks of account or other documents. 14.The petitioner paid the penalty as early as on23.04.2014. Three years thereafter, show cause notices wereissued to the petitioner. In these cases, the entire paymentspaid by the petitioner and there is no intention to evadepayment. The Assessment Orders shows that only penalty waslevied for wrong calculation of loss and no concealment ofincome, penalty paid in the year 2014. In this case, there isno material to show that there was any deliberate and consciousevasion of tax on the part of the petitioner. The Hon'ble ApexCourt in the case of “Prem Dass Versus Income Tax Officerreported in (1999) 5 SCC 241” had held that mere omission andnegligence, cannot be construed as offence. It is establishedprinciple that there has to some 'mensrea' on the part of theaccused and there should be some amount of tax evaded orconcealed. In this case, there is no concealment of income. 15.In view of the above, the continuation of prosecutionagainst the petitioner would amount to abuse of process of law.Hence, the proceedings in C.C.Nos.582 & 583 of 2017, on the fileof the trial Court are liable to be quashed and, are quashed.Criminal Original Petitions are, accordingly, allowed.Consequently, the connected Criminal Miscellaneous Petitions areclosed. Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar vv2To1.The Additional Chief Metropolitan Magistrate Court, Economic Offence – II, Egmore, Chennai. 2.The Assistant Commissioner of Income TaxCentral Circle-1(2),Investigation Wing, Room No.311,No.46, M.G.Road,Chennai-600 034. 3.The Public Prosecutor,High Court, Chennai. Crl.O.P.Nos.24005 & 24012 of 2021 SMI(CO)SB(02/03/2022)