Prosecution u/s 276C(2) quashed as the assessee had though not paid due income tax along with return but later deposited it within a short period.
In a recent judgment, Hon’ble Bombay High Court has quashed prosecution initiated u/s 276C(2) of the Income Tax Act, 1961 (the Act) as the assessee had though not paid due income tax along with return but later deposited it within a short period
ABCAUS Case Law Citation:
4806 (2025) (10) abcaus.in HC
Important Case Laws relied upon by Parties:
Kashiram Vs. IT Officer
Unique Trading Co. Vs. RTO
Nayan Jayantilal Balu vs. Union of India & Ors
Against the assessee, Income Tax Department had filed a complaint in the Court of Magistrate who had issued issue process for the offence punishable under Section 276C (2) of the Income Tax Act, 1961 (the Act).
The assessee had filed a Writ Petition seeking to challenge the process issued under Section 276C(2) of the Income Tax Act, 1961 (the Act) for failure to deposit due income tax on or before filing of the return of income.
The Petitioner assessee ran a business on partnership. The assessee filed its return of income for the AY 2022-23 on 5th November 2022 showing approx. Rs. Ninety Five lakhs as income tax liability. The Income tax liability was required to be paid before furnishing such return of income as contemplated under the provisions of Section 140-A of the Act. However, the assessee did not deposited the tax on or before filing the return of income but paid the income tax on 16.01.2023.
The Assessing Officer submitted a proposal for launching of prosecution towards willful attempt to evade tax which is an offence punishable under Section 276C(2) of the Act and it was endorsed by Principal Commissioner of Income Tax.
Subsequently, PCIT called the explanation of assessee for not granting sanction to prosecute for the offence punishable under section 276 (C) of the Act. The assessee filed his submission online through e-filing portal and stated that there was some financial difficulty within the organization. The assesee further informed that subsequently he had paid the amount due towards income tax with interest and as such, he was not in default with the respective income tax liability. Hence, he requested for dropping the process of initiating the prosecution.
The department was not satisfied with the explanation and Principal Commissioner of Income Tax granted sanction under Section 279(1) of the Act to prosecute the assessee for violation of the provisions of Section 140A punishable under Section 276C(2) of the Act.
The case of the Income Tax Department was that along with the Return of Income / at the time of submitting Return of Income, the accused assessee had not deposited the amount of Income Tax which was due as per his calculation.
The Department further submitted that even subsequently, the assessee had not deposited it and therefore not only there was a default but also there was a willful default as contemplated as per the provision of 276 C (2) of the Act.
The Department relied upon provisions of 278 E relating to presumption as to culpable State that the burden lies on assessee to establish that failure was not on account of willful intension.
The assessee contended that there was no willful default and in fact he had paid the amount of Income Tax due as per self assessment though not within initial period.
It was further submitted that what is contemplated for Section 276C(2) is not merely an evasion to pay tax but it should be willful i.e. intentional. In this case it was absent. That as per the provisions of Income Tax Act, there is difference between “willful evasion” and “failure” to pay tax. It was submitted that there are certain kinds of tax which if not paid then that itself is sufficient to attract penal provisions of Income Tax Act. eg. TDS, whereas in case of ‘willful evasion’, there must be averment that the assessee deliberately and intensionally attempted to evade the tax and it must be substantiated.
The Hon’ble High Court observed that there was no dispute that assessee was liable to pay tax under Section 140-A of Income Tax Act and liable to submit return of income under Section 139 of the Income Tax Act. About the date of submitting return and date of paying tax, after due date was also not in dispute.
The Hon’ble High Court further observed that it is a settled law that law laying down punishment has to interpreted strictly, mean to say, if particular act / obligation states that there is a punishment for its non fulfillment is provided then these provisions need to be interpreted strictly and its adherence should be insisted when there is a complaint of non-adherence.
The Hon’ble High Court further observed that Section 276C is titled as ‘willful attempt to evade tax etc…’ and there are two sub-sections but they operate in different field. Both the sub-sections lays down different punishment. In both what is common is ‘willful attempt by a person’. But still there is a difference, the Hon’ble High Court opined.
The Hon’ble High Court pointed out that the difference is in some of the wordings of those sub-sections and this difference also contemplates different contingencies and lead to different consequences. Sub-section (1) of Section 276C is a punishable contingency ‘evasion of tax etc.’. The word ‘payment of tax’ is not incorporated in it. whereas in sub-Section (2) the word ‘payment of tax etc’ is added.
The Hon’ble High Court opined that it can be said that sub section (1) contemplates evasion of tax including submission of return, whereas as per sub section (2) only ‘non-payment of tax’ punishable. Therefore, observations made “in a case of willful attempt to evade payment of tax” will be relevant while dealing with present controversy.
The Hon’ble High Court further noted that as the title of Section 276(C) indicates, the word ‘failure’ is absent. There is a difference in between ‘failure’ and ‘evasion’. Furthermore, the evasion should not only be simple evasion but it should be willful evasion. The provisions of 276-B of the said Act stands on different footing and it will be applicable when the tax deducted at source is not credited to Government. This is one of the contingency. ‘Failure to credit’ itself is sufficient. It need not be willful. Because once tax has been deducted from the income of other person (who is liable), such person is bound to credit it. That omission itself is an offence without addition of willfulness / intension; but the legislatures have cautiously used the word ‘willful evasion’ in Section 276-C of the Income Tax Act. It indicates there maybe cases wherein there is a genuine case for not paying tax on or before the due date even though return is submitted. In a given case, such failure cannot be considered as a willful evasion. Such cases will be outside the clutches of Section 276C of the Income Tax Act.
The Hon’ble High Court opined that in the light of interpretation of the provisions of Section 276C, it cannot be inferred that assessee had committed willful default in paying the tax alongwith the return.
The Hon’ble High Court opined that the assessee had pleaded about financial difficulties. This can be considered as evasion but department ought to have pleaded that these financial difficulties are not real financial difficulty but just an excuse. The burden of proof can be shifted at a later stage. The presumption of culpableness comes at a later stage only when the ingredients are satisfied at the beginning.
The Hon’ble High Court held that considering the fact that tax was paid on 16.01.2023. it was not a fit case for prosecution and it will be abused of process of Court if prosecution is continued.
Accordingly, High Court allowed the Writ Petition and the order of issuance of process by Magistrate Court was quashed and set aside along with the complaint.
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