Bombay High Court
Rajani M Bhagat vs The Dy. Cit Range 9 (2) / 13 (1) (2) Mumbai ... on 26 June, 2024
Author: Prithviraj K. Chavan
Bench: Prithviraj K. Chavan
2024:BHC-AS:24982 902-WP-ST-321-2024.doc
Shailaja
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION [STAMP] NO.321 OF 2024
Nirlon Ltd and another ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2195 OF 2024
Jai Shroff ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2196 OF 2024
Rajani M. Bhagat ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2274 OF 2024
Moosa Raza ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
SHAILAJA Digitally signed by SHAILAJA
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SHRIKANT HALKUDE
SHRIKANT Date: 2024.06.27 15:35:54
HALKUDE +0530
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902-WP-ST-321-2024.doc
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2280 OF 2024
Aruna Makhan ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2285 OF 2024
Rama Verma ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
a/w
CRIMINAL WRIT PETITION [STAMP] NO.2287 OF 2024
Kunal V. Sagar ] Petitioner
Vs.
The Dy. CIT Range 9 (2)/ 13 (1) (2) ]
Mumbai and others ] Respondents
......
Mr. Amit Desai, Senior Advocate a/w Mr. Gopal Shenoy, Ms. Pooja
Kothari and Mr. Bhavin Shah i/b Rashmikant and Partners, for
Petitioners.
Mr. Vikas T. Khanchandani a/w Mr. Eshaan Saroop, for Respondent
No.1.
Ms. P.P. Bhosale, for Respondent - State.
......
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CORAM : PRITHVIRAJ K. CHAVAN, J.
RESERVED ON : 18 th June, 2024.
PRONOUNCED ON : 26th June, 2024.
ORDER:
1. Rule.
2. Rule is made returnable forthwith.
3. Learned Counsel for respondent No.1 waives service.
4. With the consent of the parties, Petitions are taken up for final disposal at the stage of admission.
5. This bunch of petitions arise from identical set of facts questioning the legality and propriety of prosecution of the petitioners by respondent No.1. The petitioners have, therefore, invoked inherent jurisdiction of this Court under Section 482 of the Code of Criminal Procedure, 1973 (for short "Cr. P.C") r/w Article 227 of the Constitution of India.
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6. A few facts germane for disposal of these petitions can be summarized as follows.
7. Petitioner No.1 in Writ Petition [Stamp] No. 321 of 2024 - Nirlon Ltd. is a company formed and registered under the Companies Act, 1956 having it's office at Goregaon (East), Mumbai. Respondent Nos.2 to 7 in Criminal Writ Petition [Stamp] No.321 of 2024 are the petitioners in the identical petitions. A Criminal complaint bearing C.C No. SW/189 of 2017 dated 27 th April, 2017 came to be filed by the respondent No.1 before the Additional Chief Metropolitan Magistrate, 38 th Court, Ballard Pier, Mumbai. The learned Magistrate vide an order dated 9 th December, 2019 issued process as well as summons dated 13 th January, 2023. The petitioners and respondent No.2 to 7 herein are being prosecuted under Section 276C, 277, 278B and 278E of the Income Tax Act, 1961 (for short "Act") on the ground of "wilful evasion of tax".
8. According to the petitioners, for the assessment year 2009- 2010, the petitioners transferred a part of it's land situate at Goregaon East which was re-valued in 2006-2007. The original 4 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc return of income (for short "ROI") was filed for the year 2009- 2010 declaring loss of Rs.1,61,95,625/- in a regular computation of income and profit of Rs.3,50,33,096/- being book profit computed under Section 115JB of the Act. A revised return of income was filed for the year 2009-2010 declaring loss of Rs.1,61,95,625/- in regular computation of income and profit of Rs.3,75,80,558/- being book profit computed under section 115JB of the Act.
9. On 26th December, 2011, an order was passed by A.O under Section 143 (3) of the Act wherein Rs.4,88,32,034/- was considered as re-valued cost of land and book profits were shown as Rs.8,64,12,592/-.
10. The Principal Commissioner of Income Tax vide an order dated 30th March, 2017 granted sanction to prosecute the petitioners. Accordingly, a complaint dated 27 th April, 2017 came to be filed before the learned Magistrate bearing No. SW/189/2017. By an order dated 25th October, 2018, respondent No.1 - Deputy Commissioner of Income Tax Act deleted the tax liability imposed vide an order dated 26th December, 2011. Income Tax Appellate Tribunal vide an order dated 12th February, 2019 set aside the 5 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc penalty arising out and based on the levy of income tax by the respondent No.1. No appeal has been preferred against the said order. It is, thus, the contention of the petitioners that despite tax demand and penalty itself being deleted by the respondent No.1 and ITAT respectively, process came to be issued.
11. On the other hand, learned Counsel for the respondent No.1 supported and justified action of the respondent No.1 by filing an affidavit in reply. It is needless to reiterate all the relevant facts stated in their affidavit-cum-reply. Suffice it to extract paragraphs 16 and 17 of the said reply. The paragraphs 16 and 17 read as under;
"16. I say and submit in the light of above narration the prosecution was launched after the addition of Rs.4.88 Crores was confirmed by CIT (A). The respondent - department had a case u/s 276C read with section 278E and section 277 of the Income Tax Act, 1961 at the relevant material time for filing complaint, accordingly upon following the prescribed procedure and obtaining necessary sanction, Criminal Complaint being CC no. SW/189/2017 was filed under the erstwhile charge of PCIT-13 against the Petitioner Company and its Directors/principal officers. I further submit that subsequent to the deletion of quantum 6 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc addition and penalty levied u/s. 271 (1) (c) of the Income Tax Act by the Hon'ble ITAT vide its order dated 29.11.2017 read with Order dated 12.02.2019, the prosecution launched by the Income Tax department against the present Petition company and its directors/principal officers under CC no. SW/189/2017 at the relevant time does not survive and is to be withdrawn. The position that the such prosecution is to be withdrawn is also laid down in CBDT instruction bearing F. No.285/16/90 - IT (Inv. - I) 43 dated 14-05-1996.
17. I say in the above circumstances, it is humbly submitted that the present Petition may kindly be disposed of accordingly".
12. I heard Mr. Desai, learned Senior Counsel for the petitioners and Mr. Khanchandani, learned Counsel for respondent No.1.
13. Learned Counsel for the petitioners pressed into service following few decisions;
(1) K.C. Builders and another Vs. Assistant Commissioner of Income Tax1 (2) Radheshyam Kejriwal Vs. State of West Bengal and another2 1 (2004) 2 Supreme Court Cases 731 2 (2011) 3 Supreme Court Cases 581 7 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc (3) Videocon Industries Limited and another Vs. State of Maharashtra and others3
14. Section 276C (1) read with Section 278E provides;
"276C. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or [impossible, 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.
278E. (1) In any prosecution for any offence under this 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.
3 (2016) 12 Supreme Court Cases 315 8 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc Explanation.- In this sub-section "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to 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].
Prosecution to be at instance of [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner].
15. A short question involved in this bunch of petitions is as to whether the prosecution launched by the respondent No.1 against the petitioners under section 276C as well as under section 277 and 278B and 278E would amount to "wilful evasion of tax" in view of the settled legal position by a catena of decisions, more particularly, the decision of the Supreme Court in case of K.C. Builders and another Vs. Assistant Commissioner of Income Tax (supra).
16. Law on the said aspect is no more res integra. The Supreme Court in the case of K.C. Builders and another Vs. Assistant Commissioner of Income Tax (supra) held thus;
9 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc "13. "One of the amendments made to the abovementioned provisions is the omission of the word "deliberately" from the expression "deliberately furnished inaccurate particulars of such income". It is implicit in the word "concealed" that there has been a deliberate act on the part of the assessee. The meaning of the word "concealment" as found in Shorter Oxford English Dictionary, 3rd Edition, Vol. I, is as follows:-
"In law, the intentional suppression of truth or fact known, to the injury or prejudice of another."
14. The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1) (iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and, therefore, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself 10 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities".
24. In the instant case, the penalties levied under Section 271(1)(c) were cancelled by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in I.T.As Nos. 3129-32. It is settled law that levy of penalties and prosecution under Section 276-C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276-C is automatic.
25. In our opinion, the appellants cannot be made to suffer and face the rigorous of criminal trial when the same cannot be sustained in the eye of law because the entire prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of the Appellate Tribunal supersedes the order of the Assessing Officer under Section 143(3) more so when the Assessing Officer cancelled the penalty levied.
26. In our view, 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. As already noticed, the subject - matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the assessing officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of the law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and 11 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc without jurisdiction. The Assistant Commissioner of Income Tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned Magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable". The ratio laid down in the aforesaid decision is squarely applicable to the present set of facts.
17. Learned Senior Counsel for the petitioners has also invited my attention to a beneficial Circular and instructions issued by the Authorities in the administration of the Act which has a binding force. In support of the same, he has referred to decisions in the cases of Keshavji Ravji & Co. Vs. CIT4 and UCO Bank Vs. CIT5 4 (1990) 183 ITR 1 (SC) 5 (1999) 237 ITR 889 (SC) 12 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc
18. The Officers of the Revenue are required to strictly abide by the instructions of 2008 Circular No.24 of 2019. Action of the respondent No.1 and 2 in launching the prosecution against the petitioners is bad in law being contrary to the specific instructions having binding effect. The prosecution appears to have been launched in premature and hasty manner without penalty being confirmed by the ITAT which is in contravention of the binding instructions of the CBDT.
19. A policy is adopted by the CBDT in respect of launching of prosecution under Section 276 (C) (1) of the Act i.e "wilful attempt to evade tax". CBDT had laid down guidelines bearing F. No.285/90/2008-IT (Inv-I) /05 dated 24 th April, 2008 prescribing the time frame to process cases for prosecution. As regards Section 276C (1) is concerned, it has been specified that all cases should be processed for prosecution where penalty under section 271 (1) (c) of the Act exceeding Rs.50,000/- is imposed and confirmed by the Tribunal. Petitioner No.1 vide communication dated 27 th March, 2017 had informed the PCIT that the matter is pending before the ITAT. In contravention of the aforesaid instructions hereinabove, prosecution came to be launched against the petitioners.
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20. As already stated, penalty arising out and based on levying of additional tax has been set aside by the ITAT vide an order dated 12th February, 2019. In that view of the matter, the prosecution proceedings on the same facts ought to be automatically quashed.
21. The Supreme Court in case of Union of India and others Vs. Dharmendra Textile Processors and others6 has held as under;
"The penalty under the said section is a civil liability. Wilful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution under section 276C of the Act".
Since it is a civil liability it does not require mens rea and in case of prosecution, mens rea is sine qua non and, therefore, the prosecution cannot be allowed to be continued, more particularly, in view of the fact that the ITAT had deleted the penalty.
22. As already stated, the Hon'ble Supreme Court in case of K.C. Builders and another Vs. Assistant Commissioner of Income Tax (supra) has in no uncertain terms held that the penalty and prosecution under the Act run hand in hand. When penalty itself is 6 [2007] 295 ITR 244 (SC) 14 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc deleted then there is no question of prosecuting the assessee under Sections 276C (1), 277 and 278B of the Act.
23. Admittedly, no appeal has been preferred against the order dated 12th February, 2019 passed by the ITAT till date. Limitation to file an appeal has also expired and, therefore, the order has attained finality.
24. The Supreme Court in case of Radheshyam Kejriwal Vs. State of West Bengal and another (supra), has held that where the departmental proceeding has resulted in exoneration of the assessee then the criminal prosecution must also fail and has held thus;
"37. We find substance in the submission of Mr. Sharan. There may appear to be some conflict between the views in the case of Standard Chartered Bank Vs. Directorate of Enforcement, (2006) 4 SCC 2and Collector of Customs Vs. L.R. Melwani AIR 1970 sc 962 holding that adjudication proceedings and criminal proceeding are two independent proceedings and both can go on simultaneously and finding in the adjudication proceeding is not binding on the criminal proceeding and the judgments of this Court in the case of Uttam Chand vs. ITO, (1982) 2 SCC 543 G.L. Didwania Vs. ITO, 1995 Supp (2) SCC 724 and K.C. Builders wherein this Court had taken a view that when there is categorical finding in the 15 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc adjudication proceeding exonerating the person which is binding and conclusive, the prosecution cannot be allowed to stand. The judgments of this Court are not to be read as statute and when viewed from that angle there does not seem any conflict between the two sets of decisions. It will not make any difference on principle that latter judgments pertain to cases under the Income Tax Act.
38. The ratio which can be culled out from these decisions can broadly be stated as follows :-
(i) Adjudication proceeding and criminal prosecution can be launched simultaneously;
(ii) Decision in adjudication proceedings is not necessary before initiating criminal prosecution;
(iii) Adjudication proceedings and criminal proceedings are independent in nature to each other;
(iv) The finding against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution;
(v) Adjudication proceedings by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20 (2) of the Constitution or Section 300 of the Code of Criminal Procedure;
(vi) The finding in the adjudication proceeding in favour of the person facing trial for identical violation will depend upon the nature of finding.
If the exoneration in adjudication proceedings is on technical ground and not on merit, prosecution may continue; and 16 of 17 ::: Uploaded on - 27/06/2024 ::: Downloaded on - 28/06/2024 03:18:07 ::: 902-WP-ST-321-2024.doc
(vii) In case of exoneration, however, on merits where allegation is found to be not sustainable at all and person held innocent, criminal prosecution on the same set of facts and circumstances can not be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.
39. In our opinion, therefore, the yardstick would be to judge as to whether the allegation in the adjudication proceedings as well as the proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceedings, the trial of the person concerned shall be in abuse of the process of the court".
25. Corollary of the aforesaid discussion is that the Petitioners succeed and the following order is expedient.
:ORDER :
[a] The Petitions are allowed in terms of prayer clauses (a) (i), (ii) and (iii).
[b] All the aforesaid orders and complaint are quashed and set aside.
[c] Rule is made absolute in the aforesaid terms.
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