Vijay Pal Dalmia, Advocate

Supreme Court of India & Delhi High Court

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Rajat Jain, Advocate

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In the case tilted as Beaver Estates Pvt. Ltd. and Ors. Vs. The Assistant Commissioner of Income Tax Corporate, Circle 1(1) and Ors., OP (Crl.) No. 400 of 2019, MANU/KE/4435/2019, the High Court of Kerala has directed the Trial Court to keep the criminal proceedings initiated against the Petitioner Company and its Managing Director on the complaint filed against them by the Assistant Commissioner of Income Tax alleging that they had made wilful attempt to evade tax and committed an offence punishable under Section 276C(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), in abeyance, till the disposal of Income Tax Appeal filed by the Petitioners for challenging the assessment of tax before the Commissioner of Income Tax.

That in the instant case, the Petitioners filed a petition before the Hon'ble High Court for staying the criminal trial initiated against them for wilful attempt to evade tax on the ground that if the statutory appeal filed by the petitioners under the Act gets allowed, it would knock down the very basis of the prosecution.

The Petitioners in support of their stand relied on the judgment of the Hon'ble Supreme Court in the case of K.C. Builders v. Assistant Commissioner of Income Tax, MANU/SC/0070/2004: (2004) 2 SCC 731, wherein it had been held that levy of penalties and prosecution under Section 276C of the Act are simultaneous and hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276C of the Act is automatic.

The Petitioners also relied on the judgment of the Hon'ble Supreme Court in the case of Income Tax v. Bhupen Champak Lal Dalal, MANU/SC/0141/2001: AIR 2001 SC 1096, wherein the Hon'ble Court had held as under:

"The prosecution in criminal law and proceedings arising under the Act are undoubtedly independent proceedings and, therefore, there is no impediment in law for the criminal proceedings to proceed even during the pendency of the proceedings under the Act. However, a wholesome rule will have to be adopted in matters of this nature where courts have taken the view that when the conclusions arrived at by the appellate authorities have a relevance and bearing upon the conclusions to be reached in the case necessarily one authority will have to await the outcome of the other authority".

On the other hand, to counter the stand of the Petitioners, the Respondent relied on the judgment of the Hon'ble Supreme Court in the case of Sasi Enterprises v. Assistant Commissioner of Income Tax, MANU/SC/0072/2014: (2014) 5 SCC 139, wherein the Hon'ble Court had held as under:

"We also find no basis in the contention of the learned senior counsel for the appellant that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings under Section 276CC of the Act. Section 276CC contemplates that an offence is committed on the non-filing of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach...... If it was the intention of the legislature to hold up the prosecution proceedings till the assessment proceedings are completed by way of appeal or otherwise the same would have been provided in Section 276CC itself. Therefore, the contention of the learned senior counsel for the appellant that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the appellant had not filed the return as per Section 139(1) of the Act or following the notices issued under Section 142 or Section 148 does not arise".

In the instant case, the Hon'ble Judge of the Kerala High Court differentiated the case in hand with the judgment of Sasi Enterprises v. Assistant Commissioner of Income Tax, relied upon by the Respondent, on the ground that the said judgment was passed in the context of Section 276 CC of the Act and not in the context of Section 276 C of the Act.

Section 276CC of the Act Failure to furnish returns of income

If a person wilfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub-section (2) of the said section or section 115WH or the return of income which he is required to furnish under sub-section (1) of section 139 or by notice given under clause (i) of sub-section (1) of section 142 or section 148 or section 153A, he shall be punishable, -

(i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds [twenty-five hundred thousand rupees], with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;

(ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to [two years] and with fine :

Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of fringe benefits under sub-section (1) of section 115WD or return of income under sub-section (1) of section 139] -

(i) for any assessment year commencing prior to the 1st day of April, 1975;or

(ii) for any assessment year commencing on or after the 1st day of April, 1975,if-

(a) the return is furnished by him before the expiry of the assessment year; or

[(b) the tax payable by such person, not being a company, on the total income determined on regular assessment, as reduced by the advance tax or self-assessment tax, if any, paid before the expiry of the assessment year, and any tax deducted or collected at source, does not exceed ten thousand rupees.]

Section 276C - Wilful attempt to evade tax, etc.

(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable [or imposable, or under reports his income,] under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable, -

(i) in a case where the amount sought to be evaded [or tax on under-reported income] exceeds [twenty-five hundred thousand rupees], with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two years] and with fine.

(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two years] and shall, in the discretion of the court, also be liable to fine........

The Hon'ble Court found merit in the contention of the Petitioners and therefore, allowed the petition filed by them and directed the Trial Court to keep the criminal trial in abeyance till the disposal of the appeal filed before Commissioner of Income Tax.

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