Delhi District Court
M/S Shiv Vani Oil & Gas Exploration ... vs Income Tax Office (Ito) on 28 October, 2017
32
IN THE COURT OF SH. SANJAY KUMAR AGGARWAL
SPECIAL JUDGE03: (PC ACT) CBI : DELHI.
Criminal Appeal No.: 173/2017
1. M/s Shiv Vani Oil & Gas Exploration Services Ltd.
5Th Floor TowerI, NBCC Plaza,
Pushpa Vihar, Sector5, New Delhi.
2. Mr. Prem Singhee
Managing Director
M/s Shiv Vani Oil & Gas Exploration Services Ltd.
5Th Floor TowerI, NBCC Plaza,
Pushpa Vihar, Sector5, New Delhi.
3. Mr. Padam Singhee
Director
M/s Shiv Vani Oil & Gas Exploration Services Ltd.
5Th Floor TowerI, NBCC Plaza,
Pushpa Vihar, Sector5, New Delhi.
.... Appellants
versus
Income Tax Office (ITO)
Through Sh. A.L. Prasad, DCIT
Central Circle 11, New Delhi.
.... Respondent
CC No.: 519490/2016 u/s 276CC r/w 278B of Income Tax Act, 1961.
CA No.: 173/2017 32 J U D G M E N T Vide this order I shall dispose off an appeal filed against the judgment dt. 24.06.2017 and order on sentence dt. 24.07.2017 passed by the court of Ld. ACMM, (Special Acts), Central District, Tis Hazari Courts, Delhi, hereinafter called impugned judgment and impugned order on sentence.
2. Facts relevant for the decision of the present appeal are that a complaint was filed before the Ld. ACMM by Dy. Commissioner of Income Tax, Central Circle11, New Delhi with the allegations against the appellants inter alia that a search under the provisions of Income Tax Act was conducted on 06.01.2011 against the appellant no. 1 M/s Shiv Vani Oil & Gas Exploration Services Ltd. and other companies by the Investigation Wing of the Income Tax Department, New Delhi of which the appellant no. 2 & 3 were informed to be persons responsible and Incharge of day to day affairs of the appellant no. 1 company. The case of the appellant was centralized vide order u/s 127 of Income Tax Act. It has been mentioned in the complaint that as per provisions of Section 139 (1) of the Income Tax Act, the appellant was under obligation to file the return of income on or before 30.09.2011 and the appellant failed to fulfill this obligation. A notice u/s 142 (1) of Income Tax Act dt. 25.04.2012 was issued to the appellant calling them to file the return of income on or before 03.05.2012 for assessment year 20112012. The appellants did not file the return of income within the stipulated period. Another notice u/s 142(1) Income Tax Act dt. 05.09.2012 was issued and served upon the appellants to file the return of CA No.: 173/2017 32 income by 13.09.2012 but no return was filed by them. Thereafter, another notice u/s 142(1) Income Tax Act dt. 08.10.2012 was issued and served to the appellants to file the return on or before 18.10.2012. The grudge of the respondents/complainant i.e. the Income Tax Department was that no return was filed by the appellant willfully despite being granted repeated opportunities/notices.
3. It has been averred in the complaint that finally appellants filed the return of income on 17.12.2012 declaring the income to be as 69926040/(INR) in the prescribed format digitally signed by appellant no. 3 Padam Singhee relevant to the assessment year 2011 2012 and the balance sheet, profit and loss account etc. were signed by appellant no. 2 & 3. Thereafter, appellant filed revised return for the assessment year 201112 on 15.3.2013 duly signed and verified by appellant no. 3, declaring income to be as 109926040/(INR).
4. It was highlighted in the complaint that the assessment done by the Income Tax Department u/s 143(3) of Income Tax Act for assessment year 201112 could assess a total income of the appellants to be as 1250228894/(INR) and the tax demand by way of assessment was determined as 366977696 (INR). The demand notice was issued u/s 156 of the Income Tax Act.
5. The prosecution of the appellants was sought for the offences u/s 276CC r/w Section 278B of the Income Tax Act for the assessment year 20112012 on the grounds that the appellants had willfully not filed the return of the income for the assessment year CA No.: 173/2017 32 20112012 on or before the due date and further that appellants even had not filed the return of income in response to various notices issued by Income Tax Department as detailed down above u/s 142(1) of IT Act.
6. The Ld. ACMM was pleased to frame charges for the offences u/s 276CC r/w Section 278B & 278E of Income Tax Act. The evidence was led by the parties. The respondent examined PW1 A.L. Prashad who was the complainant. The appellants also examined DW1 Kailash Jogani.
The PW1 A.L. Prasad proved the complaint Ex.PW1/1 besides the sanction granted for the prosecution Ex.PW1/2. He reiterated the contents of the original complaint in his testimony on oath before the court during precharge evidence. The appellants/accused had reserved their right to crossexamination while the precharge evidence was being recorded and they could crossexamine this witness at the post charge stage.
The DW1 Kailash Jogani was the Chartered Accountant of the appellants wherein he brought to light before this court the factum regarding imposition of penalty u/s 271F of Income Tax Act by the Assessing Officer. It was submitted on oath before the court by DW1 that against the very order of penalty u/s 271F of the Income Tax Act, the appellants preferred an appeal before CIT(A) and CIT(A)24 who by his order dt. 23.05.2015 set aside the penalty order passed by Assessing Officer, holding that there was no willful default on the part of accused company and thus there was no contravention. He proved the copy of the order Ex.DW1/1 i.e. the CA No.: 173/2017 32 order of the Commissioner of Income Tax (Appeals)24.
7. Vide the impugned judgment, the Ld. ACMM convicted the appellants for the offences u/s 276CC r/w Section 278B of IT Act and vide impugned sentence he sentenced the appellant no. 1 to pay fine of Rs. Ten lacs, and the remaining appellant no. 2 Prem Singhee and appellant no. 3 Padam Singhee to undergo RI for three years and further sentenced each to pay fine of Rs. Five lacs each. In default of payment of fine, appellant no. 2 & 3 were ordered to undergo SI for a period of three months each.
8. During the pendency of the present appeal filed by the appellants, an application was moved by ld. Counsels for appellant no. 1 with a request therein to withdraw their vakalatnama on behalf of appellant no. 1 on the grounds that the Hon'ble High Court had passed an order dt. 28.07.2017 in which provisional official liquidator was appointed to manage the day to day affairs of appellant no. 1 company. Discharge from representation/vakalatnama was sought by all the Ld. Counsels as the appellant no. 1 company had gone into liquidation. On the same day, immediately after the proceedings were over, Ld. Counsel Sh. Neeraj Kumar who was appointed by official liquidator for representing appellant no. 1 appeared and sought time for filing vakalatnama on behalf of appellant no. 1 which was filed and entertained on the next date of hearing. He appeared as previous Ld. Counsel for the appellant no. 1 was also stated to have informed the official liquidator regarding present appeal prior to date of hearing.
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9. The arguments on behalf of appellant no. 1 were carried on by Sh. Neeraj Kumar, Adv. appointed by official liquidator and arguments on behalf of remaining appellants were carried on by counsel Sh. Tanvir Ahmed Mir, Adv. The arguments on behalf of respondent were carried on by Sh. Manjeet Singh Arora, Ld. Special Public Prosecutor for Income Tax Department.
10. The arguments carried on by ld. Counsels for appellant no. 1 and that of appellants no. 2 & 3 were almost common.
11. The arguments of the ld. Counsels for the appellants in the appeal were based on the grounds taken in this appeal. The focus of the Ld. Counsels for the appellant was not much on the evidence led by the parties but their arguments were confined to the legal position of law as laid down by Hon'ble Supreme Court of India and Hon'ble High Court of Delhi. They reiterated that the impugned judgment and impugned order on sentence passed by Ld. ACMM is not sustainable in the eyes of law. They elaborated during arguments that the present complaint was filed by the respondent on 01.08.2014 before the court of Ld. ACMM and prior to that the assessing officer vide his order dt. 28.02.2014 had already imposed a penalty of Rs. 5000/ on appellant no. 1 for its failure of filing of return of income of the relevant assessment year on the grounds that the assessee filed the return beyond the period prescribed. It was further strenuously argued by Ld. Counsel for appellants no. 2 & 3 that when the recording of the testimony of PW1 was in progress, the appellant herein preferred an appeal before the Commissioner of CA No.: 173/2017 32 Income Tax (Appeals) against the order dt. 28.02.2014 passed by the Assessing Officer vide which the penalty of Rs. 5000/ was imposed upon the appellants. The worthy Commissioner of Income Tax (Appeals) vide the order Ex.DW1/1 quashed the penalty imposed by the Assessing Officer on the grounds that this was not the case for non filing of return, but it was a case for delay in filing of return of income. It has been mentioned in the order of Commissioner of Income Tax (Appeals) Ex.DW1/1 that the delay had occurred due to the reasons that the returns u/s 153A Income Tax Act were also pending and the assessee had adhered to surrender in such proceedings, that in fact had filed the returns of the current assessment year on the same day for which returns of remaining assessment years u/s 153A Income Tax Act were filed. The dates of filing of return u/s 153A Income Tax Act and date of filing of return of income tax for the assessment year 2012 were stated to be almost same in all group cases and hence he ordered for deletion of the penalty imposed by Assessing Officer.
12. The Ld. Counsel for the appellants no. 2 & 3 further argued that as on the date of filing of complaint, the assessment has not attained finality and hence the complaint became premature and hence no offence had taken place as the provisions of section 276 of the Act was not satisfied. Ld. Counsel pointed out that unless and until it is shown that failure to file the return was 'willful' or 'deliberate', no prosecution under section 276CC Income Tax Act could be initiated and that whether the appellants had committed an offence or not was to depend upon the final assessment of income CA No.: 173/2017 32 and tax liability determined by appropriate authority and not on the basis of assessment made by Assessing Officer. He stated that could be the only interpretation that could be given to section 276CC of Income Tax Act.
13. Ld. Counsel for the appellants no. 2 & 3 had also drawn the attention of this court towards the word 'willful' as contained in provisions of Section 276CC IncomeTax Act explaining that the non filing of the return either u/s 139 Income Tax Act or subsequent thereto after issuance of notice u/s 142 Income Tax Act by the appellants was neither intentional and nor it was for the purpose of evading incometax by the appellants. He argued that the ld. ACMM jumped to the conclusion by mentioning in the impugned judgment that since the income of the appellant was assessed to be 1250228894/ on which tax was determined to be @ Rs. 366977696/ which could have been evaded if the failure would not have been discovered. The Ld. Counsel asserted that Ld. MM has erroneously declared the actions of appellants to be "willful" and it was based on wrongful assumptions, conjectures and surmises. He also stated that mere fact that a huge gap has come up in the assessment made by the appellants and the incometax authorities does not ipso facto leads to presumption that there was willful defiance on the part of the appellants to file the return in time either u/s 139 Income Tax Act or subsequent to notice u/s 142 Income Tax Act given the circumstances when the penalty imposed by the assessing officer has already deleted in the adjudicatory proceedings. He also argued that how can the defiance be willful when a CA No.: 173/2017 32 whooping sum of Rs. 7 crores were already deposited by the appellants as advance tax by the appellants.
14. Upon being quizzed by this court, the Ld. Counsel for the appellants stated that the matter regarding the actual assessment of the income pertaining to the year in dispute is still pending before the Assessment Commissioner Income Tax and hence the complaint was not maintainable. The Ld. Counsels further refuted that ld. ACMM has committed an error in coming to conclusion that the return was not filed for the purposes of evading the tax, this is because the issue herein was not as to how much the assessee was to be assessed for incometax but issue was confined merely to the late filing of the return.
15. Ld. Counsel for appellants more particularly for appellants no. 2 & 3 relied upon the judgment of Hon'ble Supreme Court of India in K.C. Builders & Anr. Vs The Assistant Commissioner of Income Tax (2004), 2 SCC 731, and the judgment of Hon'ble High Court of Delhi in Income Tax Officer Vs M/s Rajan & Company, Crl. Revision Petition 33/2005 DOD 02.01.2007.
16. Per contra, the Ld. Counsel for respondent submitted that the impugned judgment and impugned order on sentence does not suffer from any illegality or incorrectness and has been passed within the periphery of law. It was agitated that the prosecution before the court of Ld. ACMM and the proceedings before the assessing officer or Commissioner of Income Tax (Appeals) or the Appellate Tribunal CA No.: 173/2017 32 Income Tax are independent, and that simply because the penalty has been deleted by the order of Commissioner of Income Tax (Appeals), it cannot be ipso facto taken to mean that the appellants cannot be asked to face prosecution or convicted if the offences are proved. He stated that since the two platforms i.e. the adjudication proceedings under Income Tax Act and the prosecution under Income Tax Act are independent, the authorities acted within the purview of their own sphere. He stated that ld. Counsel for the appellants is not right in his submission that the impugned judgment and impugned order on sentence cannot stand on its own legs as the penalty has already been deleted by the Commissioner of Income Tax (Appeals).
17. Ld. Counsel for the respondent further carried on that the appellants are harping on the order dt. 25.5.2015 passed by Commissioner of Income Tax (Appeals) regarding quashing of the deletion of penalty u/s 271 (F) Income Tax Act which was slapped upon appellant in connection on non compliance of section 139 Income Tax Act. It has been claimed that as per section 139(1) Income Tax Act, the appellant no. 1 was statutorily bound to file the return on or before 30.09.2011. It has been explained by ld. Counsel for respondent that ld. ACMM has convicted the appellants for non compliance of the notice u/s 142(1) which is admitted to have been served to the appellants Ex.PW1/7 dt. 08.10.2012. It was further highlighted that there was a time gap in issuing notice u/s 142(1) Ex.PW1/7 dt. 08.10.2012 and the deletion of penalty for non compliance of the provisions of Section 139 of Income Tax Act CA No.: 173/2017 32 according to which the return ought to have been filed by 30.09.2011, though as per appellant the time was still 30.09.2011. Upon being questioned by this court during arguments, the Ld. Counsel for the respondent has clarified that no adjudicatory proceedings were initiated against the appellant by the Assessing Officer of Commissioner of Income Tax (Appeals) for non compliance of the notice u/s 142(1) Ex.PW1/7. Ld. Counsel for the respondent further referred to Section 278(E) Income Tax Act wherein it has been mentioned that the court shall presume the existence of culpable mental state on the part of the accused. He further stated that Ld. ACMM had categorically dealt with the issue regarding distinction with respect to the implications of non filing of return u/s 139 and Section 142 Income Tax Act coupled with Section 278(E) Income Tax Act.
18. Ld. Counsel for the respondent referred to the judgment of Hon'ble High Court of Delhi in V.P. Punj Vs Assistant Commissioner Income Tax DOD 03.08.2001 and also of Hon'ble Supreme Court of India in Prakash Nath Khanna Vs. Commissioner Income Tax (2004) 9 SCC 686, DOD 16.02.2004 and Radhe Shyam Kejriwal vs State of West Bengal (2011) 3 Supreme Court Cases 581. Ld. Counsel for respondent heavily relied upon the three Judges Bench judgment of Hon'ble Supreme Court in Radhe Shyam Kejriwal case (supra) with the arguments that it was held in the said judgment that adjudicatory proceedings and criminal proceedings can be launched simultaneously which he claimed it to be in contrast to the two Judge Bench judgment relied upon by the ld. Counsel of the appellants in CA No.: 173/2017 32 K.C. Builders case (supra).
19. Ld. Counsel for the respondent has further drawn the attention of this court towards Section 276CC Income Tax Act proviso in order to refute the arguments of ld. Counsel for the appellants for the word 'willful' as contained in section 276CC Income Tax Act with arguments that the proviso of the said section provided that the person shall not be prosecuted if even after payment of advance tax his income does not exceed Rs. 3000/. He highlighted that the proviso can be taken to mean that in any case if the income of the assessee is assessed for a sum more than Rs. 3000/ even after the adjustments of advance tax, he can be prosecuted.
20. Rebutting the arguments of ld. Counsel for the respondent, ld. Counsels for the appellants more particularly Ld. Counsel for appellants no. 2 & 3 with all vehemence at their command argued that the ld. Counsel for the respondent is trying to confuse the provisions of Section 139 and Section 142 Income Tax Act and have not read/understood the same in its true letter & spirit. He argued that when once the penalty has already been deleted by the Commissioner of Income Tax (Appeals) which was imposed for non compliance of provision of Section 139 Income Tax Act and while deleting the penalty the Commissioner of Income Tax (Appeals) have also detailed down the reasons and the compulsions of the appellants for non filing of the return within the prescribed period u/s 139 Income Tax Act, how can the appellant be convicted for non CA No.: 173/2017 32 compliance of the notice u/s 142 Income Tax Act which can only be pursuant to the non filing of the return within the prescribed period of Section 139 Income Tax Act. He further argued that the job of the income tax authorities is primarily the collection of tax and not the prosecution, and that when the CIT (Appeals)24 could not find legible reasons for imposition of penalty for defiance of provision of Section 139 Income Tax Act, the prosecution cannot be lanched for defiance of subsequent steps i.e. for non compliance of notice u/s 142 of Income Tax Act. He stated that both the provisions are inter related.
21. I have heard Ld. Counsel for appellant No. 1 Sh. Neeraj Kumar, Ld. Counsel for appellants no. 2 & 3 Sh. Tanveer Ahmad Mir and Special PP for respondent Sh. Manmeet Singh.
For the purposes of arriving at conclusion, this court would first of all discuss the arguments of Ld. Counsel for the appellant that the proposition whether the appellant has committed an offence or not will depend upon the final assessment of Income tax and tax liability determined by appropriate authority and not by the assessment made by Assessing Officer and that the assessment has not attained finality for which the complaint has become pre mature on the date of filing the same and hence the no offence is attracted under section 276CC of the Act. In this regard the Hon'ble supreme Court has categorically laid down clear ratio in the aforementioned judgment in Sasikala's case wherein the same issue was dealt with in detail by Hon'ble Supreme Court as laid by the Ld. Counsel for the defence in the case in hand. The Hon'ble Supreme Court has laid down the following dictum CA No.: 173/2017 32 "28. We also find no basis in the contention of the learned senior counsel for the appellant that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings under Section 276CC of the Act. Section 276CC contemplates that an offence is committed on the nonfiling of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach. The language of Section 276CC, in our view, is clear so also the legislative intention. It is trite law that as already held by this Court in B.Permanand v. Mohan Koikal (2011) 4 SCC 266 that " the language employed in a statute is the determinative factor of the legislative intent. It is well settled principle of law that a court cannot read anything into a statutory provision which is plain and unambiguous." If it was the intention of the legislature to hold up the prosecution proceedings till the assessment proceedings are completed by way of appeal or otherwise the same would have been provided in Section 276CC itself. Therefore, the contention of the learned senior counsel for the appellant that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the CA No.: 173/2017 32 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."
22. Now, I shall deal with the arguments advanced by ld. Counsel for the respondent that the strict interpretation must be given to the provisions of Section 278E of Income Tax Act wherein the Act provides for the presumption as to culpable mental state and the said provision has also been mentioned in the charges, herein above explained. Though, Section 278E Income Tax Act provides that in an prosecution for an offence under this Act which requires a culpable mental state on the part of accused, the court shall presume the existence of such mental state but it shall be a defence of the accused to prove the fact that he had no such mental state with respect to the act charged in that prosecution. Meaning thereby the presumption as contained in section 278E Income Tax Act is rebuttable and the defence can prove that the appellant had no such culpable mental state, intention, motive, knowledge of a fact or belief or a reason to believe a fact. Therefore, it was obligatory on the part of the defence to rebut the said presumption. To appreciate the provisions of section 278E of the Income Tax Act, I am being supported for my views by the judgment of Hon'ble Supreme Court of India in Sasi Enterprises Vs Assistant Commissioner of Income Tax Crl.Appeal No.62,63 and 64 of 2007, where the Hon'ble Supreme Court discussed as to what is the scope of section 278E of the Act and at what stage the presumption can be drawn by the Court. The Hon'ble Supreme Court has held as under: CA No.: 173/2017 32 "30. Section 278E deals with the presumption as to culpable mental state, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The question is on whom the burden lies, either on the prosecution or the assessee, under Section 278E to prove whether the assessee has or has not committed willful default in filing the returns. Court in a prosecution of offence, like Section 276CC has to presume the existence of mens rea and it is for the accused to prove the contrary and that too beyond reasonable doubt. Resultantly, the appellants have to prove the circumstances which prevented them from filing the returns as per Section 139(1) or in response to notices under Sections 142 and 148 of the Act."
To fulfill its obligation to rebut the presumption u/s 278 Income Tax Act, the defence has examined its own witness DW1 Kailash Jogani who placed on record and proved the order of the Commissioner of Income Tax (Appeals)24 dt. 25.05.2015 Ex. DW1/1 vide which a penalty was imposed by Assessing Officer on the appellant for defiance of provisions of Section 139 Income Tax Act was deleted.
23. To assess as to whether the adjudicatory proceedings under Income Tax Act passed by CIT(Appeals) was based on merits and that penalty was not deleted on technical grounds, it would also be appropriate to refer to the said order of Commissioner of Incometax (Appeals )24 hereinafter called CIT (Appeals)24 which is Ex.DW1/1. It finds mention in the said order that it was directed against the order dt. 28.02.2014 passed u/s 271F Income Tax Act, 1961 by DCIT, CC06, New Delhi. This issue is necessary to be dealt with as it would have an impact on certain arguments of Ld. Counsel for the appellants which are dealt with by this court in subsequent paras. It CA No.: 173/2017 32 has been mentioned in the said order that Assessing Officer had imposed a penalty amounting to Rs. 5000/ u/s 271(1)(C) Income Tax Act against which the appeal was filed before CIT(Appeals)24. It has been mentioned in the order that when called upon to show cause as to why penalty should not be levied, the appellant had submitted that due to the following reasons, it could not submit the return in time and that the returns for all the assesses of the group and for all the years were filed together and also the following reasons were mentioned by the appellants before CIT (Appeals)24 for non filing of return in time.
a) That the group cases of Shiv Vani Group are not yet fully centralized with the Central Circle11, New Delhi.
b) That the group was earlier assessed at Nagpur, hence all the photocopies of seized materials are lying at Nagpur.
c) That the counsel of the assessee company was at Nagpur.
d) That the photocopies of seized materials are in common for all assessee, thus the assessee requires about 45 days to co relate the entire seized material in order to file the return of income.
e) That the assessee had already filed the return of income on 27th November, 2012 and paid complete tax for the aforesaid assessment year.
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24. On the basis of the submissions of the appellants before the CIT(Appeals)24, the CIT (Appeals)24 observed that as per the section 273B Income Tax Act no penalty should levied for any failure referred to section 271F Income Tax Act if there was reasonable cause for the said failure. It was mentioned in the order of the CIT Appeals24 that the appellant therein had made considerable disclosures of undisclosed income in the group and return has been filed after taking into consideration of such finding etc. The CIT Appeals24 came to conclusion that he was satisfied that there was reasonable cause for failing to comply with the provisions of Section 139(1) of Income Tax Act. He also opined that this was not a case of non filing of return, but it was a case of delay in filing return of income and that the delay had occurred due to fact that the returns u/s 153A Income Tax Act were also pending. It was also mentioned by CITAppeals24 in his order that he had come to conclusion after noting that the appellants therein had adhered to the surrender made in the search proceedings and had in fact filed returns for the current assessment year on the same year for which the returns of the remaining assessment years (u/s 153A Income Tax Act) were filed. The dates of filing of returns u/s 153A Income Tax Act and the date of filing of returns of income for A.Y. 201112 are almost same in all group cases. After giving this finding, the CITAppeals24 did not find any merit in sustaining the penalty levied and the same was deleted. Meaning thereby for non filing of return u/s 139 (1) Income Tax Act, when the assessing officer had imposed the penalty of Rs. 5000/ upon the appellants, the same was deleted by CITAppeals24 vide order Ex.DW1/1. The order Ex.DW1/1 categorically goes to CA No.: 173/2017 32 suggest that the adjudicatory order was based on merits after giving due consideration to the submissions of the appellants and the penalty was not deleted on technical grounds.
25. Now I shall come to the arguments of the ld. Counsel for the appellants vide which the judgment of Hon'ble Supreme Court in K.C. Builders & Anrs. Vs Assistant Commissioner of Income Tax (2004) 2SCC 731 was referred and also the arguments of the ld. Counsel for the respondent vide which a three Judge Bench judgment of Hon'ble Supreme Court in Radhe Shyam Kejriwal Vs State of West Bengal & Anr. (2011) 3 SCC 581 was relied by respondents to confront judgment in K.C. Builders case (supra).
26. In the judgment of K.C. Builders (supra) the following issues were raised:
"9. On the above pleadings and facts and circumstance of the case, the following questions of law arise for consideration by this Court:
(a) Whether a penalty imposed under Section 271(1)(c) of the Income Tax Act and prosecution under Section 276 C of the Income Tax Act are simultaneous?
(b) Whether the criminal prosecution gets quashed automatically when the Income Tax Appellate Tribunal which is the final Court on the facts comes to the conclusion that there is no concealment of income, since no offence survives under the Income Tax Act thereafter?
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(c) Whether the High Court was justified in dismissing the Criminal Revision Petition vide its impugned order ignoring the settled law as laid down by this Court that the finding of the Appellate Tribunal was exclusive and the prosecution cannot be sustained since the penalty after having been cancelled by the complainant following the Income Tax Appellate Tribunal's order no offence survives under the Income Tax Act and thus the quashing of the prosecution is automatic?
(d) Whether the finding of the Income Tax Appellate Tribunal is binding upon the Criminal Court in view of the fact that the Chief Commissioner and the Assessing Officer who initiated the prosecution under Section 276C(1) had no right to overrule the order of the Income Tax Appellate Tribunal. More so when the Income Tax Officer giving the effect to the order cancelled the penalty levied under Section 271(1)(c).
(e) Whether the High Court's order is liable to be set aside in view of the errors apparent on record."
After discussing the previous law on the issues, the Hon'ble Supreme Court held as under:
"29. 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 the Court is concealment of income CA No.: 173/2017 32 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 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 crossexamination 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 Tribunal exhibited as a defence document in as much as the passing of the order as aforementioned is unsustainable and unquestionable."
27. The Hon'ble Supreme Court in K.C. Builders case (supra) has categorically held that after the order of the Tribunal and the consequent cancellation of penalty, if the trial is allowed to be proceeded further, the same would be an idle and empty formality to CA No.: 173/2017 32 require the appellants to have the order of Tribunal exhibited as a defence document in as much as the passing of the order as unsustainable and unquestionable.
28. Consequent to the arguments addressed by ld. Counsel for respondent to the effect that the judgment of K.C. Builders case (supra) given by Hon'ble Supreme Court was not applicable in view of the pronouncement of later three Judge Bench Judgment in Radhe Shyam Kejriwal case wherein it was claimed by ld. Counsel for the respondent that the three Judge Bench of Hon'ble Supreme Court had laid down that adjudication proceedings and criminal proceedings can be launched simultaneously and that both are independent in nature, this court had an occasion to go through the judgment in Radhe Shyam Kejriwal case (supra). After going through the judgment in Radhe Shyam Kejriwal case, it was transpired that though in the said judgment in para 38 (1) this court could find the submissions of ld. Counsel for respondent as correct, but the subsequent reading of said para was inconsistent with the arguments of Ld. Counsel for respondent and was somewhat in confirmity with the law laid down in K.C. Builders case by Hon'ble Supreme Court. Para 38 of said judgment is reproduced as under::
"38. The ratio which can be culled out from these decisions can broadly be stated as follows:
(i) Adjudication proceedings 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 CA No.: 173/2017 32 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 proceedings 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
(vii) In case of exoneration, however, on merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances cannot 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 proceedings 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 an abuse of CA No.: 173/2017 32 the process of the court."
29. Accordingly, it is clear from the aforementioned judgment of Radhe Shyam Kejriwal's case that though adjudicatory proceedings and criminal prosecution can be launched simultaneously and are independent of each other, but it is also been mentioned in para no.6 that if the exoneration in adjudication proceedings is on technical ground and not on merit, the prosecution may continue but, if the exoneration is on merits where the allegations is found to be not sustainable at all and the person held innocent, the prosecution on the same set of facts and circumstances can't be allowed to be continued as the underlined principle is that the burden of proof in a criminal prosecution is of higher standard as compared to adjudicatory proceedings. It was also held in para no.39 that in case no contravention of Act could be found in adjudicatory proceedings and the exoneration of the person concerned in the said proceedings is on merit, the trial of the person concerned shall be an abuse of process of law.
30. From the aforementioned discussion of the judgment of K.C.Builder's case relied upon by Ld. Counsel for the appellants as well as the judgment of Radhe Shyam Kejriwal's case (Three Hon'ble Judge Bench judgment) as relied upon by Ld. Counsel for respondent, in no terms it can be said that the judgment delivered in K.C.Builder's case by Two Hon'ble Judges has been over ruled by a subsequent judgment of Hon'ble Supreme Court in Radhe Shyam Kejriwal case.
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31. Contrary to arguments of Ld. Counsel for respondent, this court could find that the verdict of the Hon'ble Supreme Court in K.C.Builder's case stands as ratified by the subsequent judgment in Radhe Shyam Kejriwal's case (supra).
32. In the case in hand as already said, the CIT (Appeals)24 had already deleted the penalty imposed upon the appellants by the order of Assessing Officer for infraction u/s 139 of Income Tax Act. Accordingly, in the adjudicatory proceedings, the appellants were not found guilty and sufficient cause was found by CIT (Appeals)24 for the failure to file the return by the income tax department and the CIT(Appeals)24 had exonerated all the appellants in the adjudicatory proceedings. It has already been opined in previous paras that final decision in adjudicatory proceedings before CIT (Appeals)24 were based on merits. Therefore, the judgment of Hon'ble Supreme Court in K.C. Builders case (supra) as well as Radhe Shyam Kejriwal case (supra) is fully applicable to the given facts of this case as there remains no dispute as far as question of law is concerned. A strict interpretation of both these judgments would warrant that the appellant could not have been prosecuted or convicted for the offence u/s 276CC Income Tax Act for an infraction u/s 139(1)(2) of Income Tax Act.
33. To decide the arguments of Ld. Counsel for respondent regarding commission of offence u/s 276C Income Tax Act for infraction u/s 139 Income Tax Act and for infraction u/s 142 Income Tax Act as here in above detailed at the outset this court would like CA No.: 173/2017 32 to refer to the charges framed against the appellants in this case which is very relevant for appreciating the rival submissions of the parties with respect to the provisions of Section 139(1) Income Tax Act and Section 142 of Income Tax Act which is as follows:
"that you accused no. 1 (herein appellant no. 1) willfully not filed the return of income for A.Y. 201112 as required u/s 139 (1) of the IT Act and also not filed the same in response to notices u/s 142 (1) of the IT Act Ex.PW1/5, Ex.PW1/6 and Ex.PW1/7 within stipulated time. Accused no. 2 & 3 (herein appellant no. 2 & 3) being the persons responsible and incharge of day to day affairs of accused no. 1 company and thus are also guilty of the offence u/s 276CC read with Section 278(B) of the IT Act for the A.Y. 201112. You all thus, committed offence punishable u/s 276CC, Section 278B and Section 278E of the Income Tax Act, which is within my cognizance.
And I hereby direct you all to be tried for the said offences."
34. The aforementioned charge suggests that the appellants are being tried against the charge framed on 23.02.2015 by ld. ACMM against all the appellants to the effect that the appellant no. 1 willfully not filed the return of the income for A.Y. 20112012 as required u/s 139(1) of IncomeTax Act and also not filed the same in response to notices u/s 142 (1) of IncomeTax Act Ex.PW1/5, Ex.PW1/6 and Ex.PW1/7 within stipulated period. It was also mentioned in the charge that appellant no. 2 & 3 being the persons CA No.: 173/2017 32 responsible for day to day affairs of appellant no. 1 company are also guilty for offences u/s 276CC & 278B of IncomeTax Act. It is also clear from the adjudicatory proceedings that though the Assessment OfficerIncome Tax had imposed a penalty of Rs. 5000/ vis a vis Section 271F IncomeTax Act for infractions u/s 139 Income Tax Act upon the appellants but they were not imposed with any penalty for infraction u/s 142 IncomeTax Act. It was submitted by Ld. Counsel for the respondent that even if for the sake of assumption we accept the arguments of Ld. Counsel for the appellants as correct that the proceedings under section 276CC of Income Tax Act for infraction under section 139(1) of Income Tax Act could not have been continued for deletion of penalty in the adjudication proceedings in terms judgment of K.C. Builders case (supra), still the appellants are liable for the offences under section 276CC of Income Tax Act for the infraction under section 142 of the Income Tax Act.
35. In this case, a notice under section 142 of Income Tax Act was given by Income tax department to the appellants asking therein to prepare a true and correct return and to appear before the Dy.Commissioner of Income Tax. The said notices were dated 25.04.12 Ex.PW1/5, 05.09.12 Ex.PW1/6, 08.10.12 Ex.PW1/7 etc. The said notices were issued to the Principal Officer of the appellant no.1 company. The Income Tax Department has not taken any follow up action after issuance of the aforementioned notices u/s 142 Income Tax Act to the appellant no.1 company and as also admitted by the Ld. Counsel for the respondent during the course of arguments. No penalty proceedings/adjudicatory proceedings etc. CA No.: 173/2017 32 were initiated by the Income tax department against the appellant for the infraction under section 142 of Income Tax Act. The prosecution has been launched directly for the said infraction under section 142 of Income Tax Act without initiating any adjudicatory proceedings under the Income Tax Act.
Here we may take hypothetical case where in case the adjudicatory proceedings for imposing penalty might have been issued by the Income tax department for the infraction under section 142 of Income Tax Act, there could have been several possibilities. One such possibility might have been that the Assessing Officer might not have imposed any penalty. The other one could be that the Assessing officer might have been of view that penalty should have been imposed like he had imposed for the infraction under section 139 of Income Tax Act. In this second circumstance, there was one probability that the penalty imposed for infraction under section 142 of Income Tax Act could have been deleted by the CIT Appeals24 for the same reasons as he had deleted for the infraction under section 139 of Income Tax Act. In case the penalty could not have been imposed by the Assessing Officer or if imposed by him in case the same could have been set aside by the Appellate authorities, the appellant could have got the benefit of the aforesaid judgments of Hon'bel Supreme Court viz K.C.Builder's case as well as Kejriwal's case (supra) as in both the cases the prosecution either could not have been launched or if launched, the appellants could not have been convicted as it would have been an abuse of process of law. No reasons has been assigned by the Income tax department as to why the adjudicatory proceedings were not initiated by it for infraction CA No.: 173/2017 32 under section 142 of Income Tax Act and why it has chosen to prosecute the appellants directly under section 276CC of Income Tax Act for the infraction under section 142 Income Tax Act.
The CIT Appeals 24 in its order Ex.DW1/1 while deleting penalty upon the appellants has categorically mentioned that since the appellant therein (same appellants herein) had made considerable disclosure of undisclosed income in the group and return has been filed after taking into consideration the effect of such finding etc. there was reasonable cause in failing with to comply with the provisions of section 139(1) of the Act. It has also been mentioned in the order that this was not a case of non filing of return, but it was a case of delay in filing the return. The CIT Appeals24 has also prescribed in the order that the delay occurred due to the fact that the returns under section 153(A) Income Tax Act were also pending. This as per CIT Appeals24 led it to the frame conclusion that appellants had adhered to surrender made in the such proceedings and has in fact filed the return for the current Assessment year on the same day on which the returns for the remaining assessment years under section 153(A) Income Tax Act were filed. Meaning thereby it can very well be assumed that in case penalty could have been imposed by the Assessing Officer for an infraction u/s 142 Income Tax Act, it would have certainly been deleted by the CIT Appeals24 as the reasons assigned for non filing of return for both the infractions under sections 139 & 142 of Income Tax Act are almost same. Moreover, section 142 of Income Tax Act is a follow up proceedings for the infraction under section 139 of Income Tax Act and when the CIT Appeals24 have already detailed CA No.: 173/2017 32 down the reasons for delay and have accepted it to be as genuine, it would be abuse of process of law if the appellants are held guilty for the infraction under section 276CC Income Tax Act for the infraction under section 142 of Income Tax Act in the given circumstances when the penalty was already deleted for infraction u/s 139 Income Tax Act.
36. Further, the judgment relied upon by the ld. Counsel for the respondent in Prakash Nath Khanna Vs Commissioner of Income Tax (Supra) is not applicable to the given facts of this case. In the cited judgment, the Hon'ble Supreme Court had interpreted section 276CC with reference to Section 139 (1) & (2) vis a vis Section 139(4) of Income Tax Act. In the cited judgment, the appellant had taken the plea that the expression "to furnish in due time" occurring in section 276 CC Income Tax Act means to furnish within the time permissible under the Act and that the return furnished u/s 139(4) Income Tax Act at any time before the assessment is made has to be regarded as a return furnished u/s 139 (1) Income Tax Act. The Hon'ble Supreme Court taking exception to the arguments of the ld. Counsel for the appellant held that in case the plea of the appellant is accepted, it would mean that in a given case where there is a infraction and where return has not been furnished in terms of Sub section 1 or in response to notice sub section 2 of Section 139 Income Tax Act, the consequences flowing from non furnishing of the return would get obliterated. The Hon'ble Supreme Court has further held that Section 276CC Income Tax Act refers to "due time in relation to sub section 1 & 2 of Section 139 Income Tax Act and not to Section CA No.: 173/2017 32 4, had the legislature intended to cover sub section 4 also, use of expression "Section 139" alone would have sufficed and that sub section 4 of Section 139 Income Tax Act cannot by any stretch of imagination control sub section 1 where fixed period of furnishing return is stipulated. Here in the present case, the issue was not with respect to section 139 (1) & (2) Income Tax Act vis a vis Section 139 (4) Income Tax Act but the real issue raised by ld. Counsel for the respondent was that a penalty was imposed which was later deleted by Commissioner of IncomeTax (Appeals) only for infraction u/s 139 Income Tax Act and not for the infraction for section 142 of Income Tax Act which has already been decided in favour of appellants. Hence, the ratio of judgment relied upon is not applicable to given facts.
37. Though the non initiation of adjudicatory proceedings does not in any manner bar prosecution of the appellants for offence u/s 276CC Income Tax Act as rightly pointed out by ld. Counsel for respondent, but due appreciation can be given to the arguments for ld. counsel for the appellants that the basic aim of the incometax authorities is the generation of revenue and not the prosecution which being a secondary one. No cogent reason has been explained by the respondent as to why further proceedings were not carried on by the Department of Incometax for defiance of the provisions of Section 142 with respect to imposition of penalty.
38. Accordingly, the plea of the Ld. Counsel for the appellants that no prosecution could have been last under section 276CC CA No.: 173/2017 32 Income Tax Act as the assessment was not yet final is rejected in terms of the aforementioned judgment of Hon'ble Supreme Court of India.
39. To perpetuate an error is no virtue and to rectify the same is judicial conscience. I, accordingly hold that the impugned judgment dated 24.06.2017 passed by Ld. ACMM suffers from illegality and cannot be sustained in the eyes of law. The impugned judgment dated 24.06.2017 vide which the appellants were convicted for the offences under section 276CC r/w 278B of Income Tax Act is set aside. Since the judgment itself has been set aside, the impugned order on sentence dated 24.07.2017 automatically cannot sustain on its legs and hence is set aside.
The fine, if any, deposited by the appellants before the court of Ld. ACMM be refunded to the appellants. Announced in the open court on this 28th day of October, 2017.
(SANJAY KUMAR AGGARWAL) Special Judge03, CBI (PC Act), Tis Hazari Courts: Delhi.
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