Prosecution 276C for wilful attempt to evade tax stayed by High Court during pendency of appeal

Prosecution 276C for wilful attempt to evade tax stayed during pendency of appeal as its outcome would have bearing on the prosecution against the petitioners.

ABCAUS Case Law Citation:
ABCAUS 3181 (2019) (10) HC

Important case law relied upon by the parties:
K.C.Builders v. Assistant Commissioner of Income Tax : (2004) 2 SCC 731
Sasi Enterprises v. Assistant Commissioner of Income Tax : (2014) 5 SCC 139
Commissioner of Income Tax v. Bhupen Champak Lal Dalal : AIR 2001 SC 1096

Prosecution 276C stayed during pendency of appeal

The Petitioners had filed a petition under Article 227 of the Constitution of India with a prayer to issue a direction to the Additional Chief Judicial Magistrate’s Court (ACCM) to keep prosecution proceedings in abeyance till the pendency / disposal of the appeal filed by the petitioners in the matter before the Commissioner of Income Tax (Appeals).

The first petitioner was a company and the second petitioner was the Managing Director of the company. The both were the accused in the case instituted on the complaint filed against them by the Assistant Commissioner of Income Tax alleging that they had made wilful attempt to evade tax and that they had committed the offence punishable under Section 276C(1) of the Income Tax Act, 1961 (‘the Act’).

The plea of the petitioners was that they had filed appeal before the statutory authority challenging the assessment of tax and that the decision in the appeal has got bearing on the prosecution against them and therefore, the criminal proceedings pending against them may be kept in abeyance till the disposal of the aforesaid appeal.

Relying on the decision of the Apex Court, the petitioners contended that, if the statutory appeal filed by the petitioners under the Act is allowed, it would knock down the very basis of the prosecution against them and therefore, the criminal proceedings may be ordered to be kept in abeyance.

The Hon’ble High Court found force in the contention of the Petitioners. It was noted that the case relied upon by the Petitioners, was a case of concealment of income where penalty was imposed on the assessee by the assessing authority. The prosecution against the assessee was under Sections 276C(2) and 278B of the Act and Sections 193, 196 and 420 and 120B of the Indian Penal Code. However, the Supreme Court 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 Hon’ble High Court opined that in the instant case, the prosecution was under Section 276C(1) of the Act for wilful attempt to evade tax. The decision of the statutory appellate authority regarding the assessment and computation of tax would have bearing on the prosecution against the petitioners.

The petitioners also relied upon another decision of the Supreme Court wherein it had been held that the prosecution in criminal law and proceedings 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.

The Hon’ble High Court opined that the said decision also applied in the instant case because the decision of the statutory appellate authority regarding the assessment and computation of tax would have bearing on the prosecution against the petitioners for wilful attempt to evade tax.

On the other hand the Revenue invited the attention of the Hon’ble High Court to the decision of the Apex Court wherein it had rejected the contention of the appellant that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings under Section 276CC of the Act. The Hon’ble Supreme Court held that the contention 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.

However, the Hon’ble High Court opined that the decision relied upon by the Revenue had no application to the present case because the prosecution against the petitioners was for committing the offence under Section 276C of the Act and not for the offence under Section 276CC of the Act.

Accordingly, the Hon’ble High Court directed the ACJM to keep in abeyance all further proceedings against the petitioners till the disposal of appeal filed by them before the Commissioner of Income Tax (Appeals).

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