Prosecution u/s 276C and 278B upheld for not declaring income surrendered during search in return filed in response to notice u/s 153A
In a recent judgment the Sessions Court has upheld the prosecution under section 276C and 278B of the Income Tax Act, 1961 (the Act) for not declaring income surrendered during search in return filed in response to notice u/s 153A
ABCAUS Case Law Citation:
ABCAUS 3873 (2024) (02) SeC
Important Case Laws relied upon by parties:
S. P. Velayutham v. Assistant Commissioner of Income-tax, (2022) 135 taxmann. com 43 (Madras); Mrs. Noorjahan v. Deputy Commissioner of Income-tax, (2022) 138 taxmann.com 76 (Madras); Gopalji Shaw v. Income-tax Officer, (1988) 41 Taxmann.com 267 (Calcutta) and Jarnail Singh v. Income-tax Officer, (1989) 47 Taxmann 422 (Punj. & Har.); Thaksai Satyanarayan v. State of A.P., (1984) 18 Taxman 415 (AP); Kusumchand Sharadchand v. UOI, (2006) 153 Taxman 458 (MP); Krishna Medical Stores v. Income-tax Officer, (1992) 64 Taxman 193(AP); K. E. Sunil Babu, Assistant Commissioner of Income-tax v. Steel Processors, (2006) 157 Taxman 252 (KAR.); Income-tax Officer v. Sunanda Ram Deka, (1995) 216 ITR 483 (Gau.); Income-tax Officer v. Shiv Kumar, (2006) 282 ITR 406 (PUNJ. & Har.); B.T.X. Chemicals (P) Ltd. v. Suraj Bhan, (1989) 177 ITR 425 (Guj.); S. Harnam Singh Suri v. Central Board of Direct Taxes, (1983) 15 Taxman 52 (Delhi); Sabari Art Printers v. State of Orissa, (1995) 82 Taxman 527 (Ori.); D. Rahaman v. Bijaya Kishore Das, (1981) 6 Taxman 328 (Ori.); J. M. Shah v. Income-tax Officer, (1996) 218 ITR 38 (MAD.); Income-tax Officer v. Gadamsetty Nagamaiah Chetty, (1996) 88 Taxman 223 (Adhra Pradesh); First Income-tax Officer v. Radhakrishna Stores, Stationery & Bank Merchants, (1999) P. Jayappan v. S. K. Perumal, I.T.O., 1984 AIR (SC) 1693; Arun Arya Vs. Income Tax Officer, Radheshyam Kejriwal v. State of West Bengal & Anr, (2011) 3 SCC 437
In the instant case, an appeal was preferred by the appealants-accused persons under section 374 (3) of the Code of Criminal Procedure, 1973 (‘CrPC’), against impugned judgment and order on sentence passed by the learned Additional Chief Metropolitian Magistrate (ACCM).
By impugned judgment the appellants were convicted under section 276C(1)(i) and 277(i) read with section 278B of the Income Tax Act, 1961 (‘IT Act’). The appellant-accused were sentenced to pay a fine and/or imprisonment.
The complaint was filed by the Income Tax Department/respondent through its deputy commissioner against the company-appellant and its two directors. The appellant company had filed its return of income declaring loss. A search and seizure under section 132 of the Act was conducted and during the post search proceedings, appellant no.1 declared undisclosed income.
In response to notice under section 153A of the IT Act, the appellant company stated that the return filed under section 139(1) of the IT Act (the return already filed) may be treated as return under section 153A of the IT Act.
The accused was questioned and it filed revised statement of income taking into account the additional undisclosed income of rupees 50 Lac on a/c of share capital investment and on a/c of share application money. Finally, the assessment was completed under section 153A/143(3) of the IT Act whereby the satisfaction was recorded that assessee has furnishing inaccurate particulars of its income. The appellant filed an appeal against the penalty order before the CIT (Appeals), which was dismissed. Second appeal of the assessee was also dismissed by ITAT. Hence the assessment order attained the finality and no challenge to the same remains pending.
The appeal of the assessee against the penalty order was dismissed by the Commissioner of Income Tax (Appeals). ITAT also confirmed the penalty and the appeal filed by the company against the order of the ITAT was also dismissed by the Hon’ble High Court.
The main grounds/questions raised and argued in appeal before the Sessions Court were that the appellants have not wilfully attempted to evade the tax, penalty or interest chargeable or imposable under the IT Act and therefore, no offence under IT Act is made out. It was argued further that the appellants have voluntarily declared the undisclosed income and the prosecution was not warranted, much less under section 276(1), 277 and 278B of IT Act; that the department has already collected tax, charged interest and levied penalty on the appellant and again it desires to prosecute the appellants in a highly arbitrary manner; that there is no sustainable reason for initiating the prosecution, as there was no ‘wilful’ attempt on the part of the appellants to evade the tax, the appellants after the search proceedings, on its own, voluntarily surrendered the undisclosed income and have paid thereon; that the appellants filed the new return only bacause of the settlement talks going on with the respondent department and ultimately a recommendation was made for the surrendering of more income by the appellants by way of filing the said new returns; that in any case, the new returns has to be considered as protective returns.
It was also submitted that the income tax proceedings were handled on the advice of the qualified chartered accountants and the appellant is not conversant with the Income Tax Procedure and is a layman to the same, hence he was fully dependent on the wisdom of the counsel and therefore, was not liable for the prosecution.
The Sessions Court expressed disagreement with submissions of the appellants. It was observed that when the company filed its return of income declaring loss, the total income was not disclosed in the said return. During the post search proceedings and not prior to that company declared undisclosed income.
Further when notice under section 153 A of the IT Act was issued calling upon it to furnish return of income, the appellant filed a letter stating that the return previously filed under section 139 (1) of the IT Act may be treated as return under section 153 A of the IT Act. Only thereafter, the appellants filed revised statement of income taking into account the additional undisclosed total income.
The Sessions Court noted that in the penalty case, the Hon’ble High Court had found that in the course of search, the statement of one director was recorded on oath under Section 132(4) of the IT Act wherein it was interalia deposed that unaccounted income of various years was invested, benami in the share capital of some companies.
The Department deposed that the assessee/accused had attempted to evade tax on the surrendered undisclosed income willfully. In cross-examination the Department denied suggession that the accused company disclosed the surrendered income on its own; that the failure of disclosing the surrendered income by the accused was merely a technical in nature.
It was further deposed in cross-examination that there could be loss to revenue, if the undisclosed income had not been disclosed in the return of income by the accused as they would have taken the refund of income tax. No loss to the revenue cannot be justified not to launch the prosecution. The offence for which prosecution was launched, is the attempt and not the actual offence. The attempt is punishable and therefore, loss is not necessary for committing offence.
According to the Department, by not filing correct income in response to notice u/s 153A, the assessee took its chances and when felt cornered that the Revenue would, in any case, tax the income admitted, it chose to file revised computation. In case the revenue had not detected it during assessment proceedings, then assessee would have claimed refund because the income declared/admitted had not been returned in the 153A return.
The Sessions Court rejected the contention that no prosecution can be launched because the appellants have paid interest etc. to the respondent. The charging the interest is consequential action for assessment and penalty proceedings which nowhere bars the prosecution and conviction of the appellants. The appellants have not shown this Court any provisions of law or judgment which says that if the interest has been charged on the assessee/appellants, they cannot be prosecuted under provisions of the IT Act.
The Sessions Court observed that a return of income filed by the appellants was not true and correct. The said return was duly signed and verified by the revisionist (director). It was during search and post search proceedings only, undisclosed income was declared by the appellants. Even then, when the opportunity under section 153A of IT Act was given to company to file return, the company sent a letter and asked to consider the earlier return filed under section 139(1) as return in compliance of section 153A. The said acts of company resulted into assessment under section 153A/143 (3) of IT Act and penalty was imposed upon company. The company remained unsuccessful against penalty during appellate proceedings. The director himself filed an affidavit before the Income Tax Authorities and also signed/verified the Income Tax return. He in response to Show Cause Notice issued before grant of sanction, filed a sworn affidavit and confirmed that he is the director of the company.
The Sessions Court further observed that as per section 278B of the IT Act, where an offence under said Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. It is also provided that where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Further, the Sessions Court noted that Section 278E of the IT Act provides for the presumption of culpable mental state on the part of the accused under in any prosecution for an offence under this IT Act. As per said provision in any prosecution for any offence under said Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Hence, the court shall presume the culpable mental state on the part of the accused in any prosecution for an offence under this IT Act. But, it can be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. But, as per sub-section (2) of the section 278E of the IT Act, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability. Hence, accused has to prove the said defence beyond reasonable doubt and not on the basis of preponderance of probability. There was however no material on record to show that the appellants had rebutted this presumption of culpable mental state.
The Sessions Court further stated that Sanction Order is administrative in nature and not the judicial proceedings and the law nowhere provides that any opportunity shall be granted before according sanction. It was mentioned in the Sanction Order that assessee was issued a detailed show cause notice to explain personally or in writing why prosecution complaint may not be filed against him.
In view of the above, the Sessions Court dismissed the appeal.
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