Chh HC | Prosecution under Ss. 276-C and 277 of Income Tax Act doesn’t survive if penalty imposed on assessee is deleted by appellate authority

Chhattisgarh High Court: Prashant Kumar Mishra, J. quashed criminal proceedings pending against the petitioner-assessee before the Chief Judicial Magistrate for the commission of offences under Section 276-C (willful attempt to evade tax) and Section 277 (false statement in verification) of the Income Tax Act, 1961.

The gravamen of the offence alleged against the petitioner was that it concealed its income for the assessment year 1990-1991. Consequent to that, a penalty was imposed upon him by the Commissioner of Income Tax. He also granted sanction for petitioner’s prosecution, pursuant to which the criminal case which the subject matter of the present petition, was registered. The petitioner filed an appeal before the appellate authority — CIT (Appeals) — which appeal was allowed and the penalty was set aside on the finding that the petitioner did not conceal its income.

S. Rajeshwara Rao and M.K. Sinha, Advocates for the petitioner, contended that in view of the position that the penalty levied on the petitioner was set aside, the criminal proceedings pending on the file of CJM may also be quashed. Per contra, Naushina Ali appearing on behalf of A. Choudhary, Standing Counsel for the Revenue, opposed the present petition.

The High Court relied on K.C. Builders v. CIT, (2004) 2 SCC 731, wherein the Supreme Court held that “once the finding of concealment and subsequent levy of penalties under Section 271 (1)(c) of the Act has been struck down by the Tribunal, the assessing officer has no other alternative except to correct his order under Section 154 of the Act as per the directions of the Tribunal.” It was further held in the said case that “the finding of the Appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been decided by the complainant following the Appellate Tribunal’s order, no offence survives under the Income Tax Act and thus quashing of prosecution is automatic.”

In the matter at hand, the High Court, following the law laid down in K.C. Builders, held that it will an empty formality to direct the petitioner to approach the trial Magistrate, who had otherwise kept the application preferred by the petitioners pending since 15-01-2014. Resultantly, the Court exercised its inherent powers and quashed the criminal proceedings pending against the petitioner. The petition was allowed. [System (India) Castings v. CIT, 2019 SCC OnLine Chh 63, decided on 26-06-2019]

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