1 Cr.M.P. No.

2266 of 2017

IN THE HIGH COURT OF JHARKHAND AT RANCHI

Cr.M.P. No. 2266 of 2017
Pralay Pal … Petitioner
-Versus-
1. The State of Jharkhand
2. Union of India, Income Tax Department through Shri Sunil K.
Agawane, Assistant Commissioner, Income Tax Department,
Jamshedpur, Dist. East Singhbhum … Opposite Parties
-----
CORAM: HON’BLE MR. JUSTICE SANJAY KUMAR DWIVEDI
-----

For the Petitioner : Mr. Amit Kumar Das, Advocate

For the State : Mr. Vishwanath Roy, S.P.P.
For O.P. No.2 : Mr. Anurag Vijay, Jr. S.C.
Mr. R.N. Sahay, Sr. S.C.
Ms. Sharda Kumari, Advocate
-----

07/23.08.2023 Heard Mr. Amit Kumar Das, learned counsel for the petitioner,

Mr. Anurag Vijay, learned counsel for opposite party no.2 and

Mr. Vishwanath Roy, learned counsel for the State.

2. This petition has been filed for quashing the entire criminal

proceedings in connection with C/2 Case No.684 of 2016 including the order

dated 30.05.2016, whereby, summon has been issued against the petitioner

and also the order dated 15.07.2017, whereby, substance of accusation

under Section 276(c)(1) of the Income Tax Act, 1961 has been explained to

the petitioner, pending in the court of the learned Special Judge (Economic

Offence) cum Civil Judge (Sr. Div.)-II, Jamshedpur.

3. The complaint case was filed by opposite party no.2 alleging therein

that the assessee (petitioner) filed returns of income for the Assessment

Year 2011-12 on 31.07.2011 declaring a total income of Rs.18,83,940/-. The

case of the petitioner was selected for scrutiny under Section Computer

Assisted Scrutiny Selection (CASS). The assessment order under Section

 2 Cr.M.P. No. 2266 of 2017

143(3) of the Income Tax was passed by the learned Deputy Commissioner

of Income Tax, Jamshedpur on 13.09.2013 determining the total income at

Rs.20,66,090/- only. In assessment order, three additions, first one at

Rs.1,64,695/- only on the account of undisclosed interest income on

National Saving Certificates, second one at Rs.4,351/- on account of

undisclosed Bank Interest and third one at Rs.13,100/- on account of

undisclosed interest on Fixed Deposits with Telco Ltd. were made. Before

making the said additions as mentioned above, the assessee is said to have

been given the reasonable opportunity of being heard, but the assessee

failed to offer any satisfactory explanation in this regard. The assessee had

concealed the income of Rs.1,82,146/- deliberately as mentioned above.

The assessee has deliberately provided inaccurate details of his income

which leads to concealment of income. Therefore, in this matter penalty

proceeding was also initiated under Section 271(1)(c) of the Income Tax

Act, 1961 and the penalty proceeding was also confirmed by the learned

Commissioner of Income Tax (Appeal), Jamshedpur vide his order dated

27.11.2015 passed in appeal No.206/JSR/2013-14. The assessee is alleged

to have attempted to evade the tax liability by furnishing inaccurate

particulars of income leads to concealment of income of Rs.1,82,146/-.

Thus, the accused made himself liable to be prosecuted under Section

276C(1) of the Income Tax Act, 1961. The sanction order under Section

279(1) of the Income Tax Act, 1961 for launching prosecution under Section

276C(1) of the Income Tax Act, 1961 against the accused for the

Assessment Year 2011-12 has been accorded to by the Principal

Commissioner of Income Tax, Jamshedpur on 03.03.2016. However, in the

aforesaid sanction order, some mistake was apparent which later on was
 3 Cr.M.P. No. 2266 of 2017

rectified by the learned Principal Commissioner of Income Tax, Jamshedpur

vide order dated 21.03.2016 passed under Section 154 of the Income Tax

Act, 1961.

4. Mr. Amit Kumar Das, learned counsel for the petitioner submits that

the subject matter of the assessment in the complaint case was also the

subject matter of penalty under Section 271(1)(c) of the Income Tax Act,

1961. He submits that against the penalty order dated 27.11.2015, the

petitioner filed an appeal being ITA No.117/Ran/2016 before the

appellate tribunal under the said Act and vide order dated 08.12.2016, the

said appeal was allowed and penalty order was set aside. He submits that

in view of this fact, the foundation itself has been set aside. The entire

criminal prosecution with regard to the said Act is malicious one. He

also submits that the case of the petitioner is fully covered in view of

the judgment passed by the Hon'ble Supreme Court in K.C. Builders

and another v. Assistant Commissioner of Income Tax; [(2004) 2

SCC 731].

5. On the other hand, Mr. Anurag Vijay, learned counsel for the Income

Tax Department submits that the counter affidavit has already been filed.

He submits that on the Computer Assisted Scrutiny Selection (CASS), it was

found that there was difference of assessment to the tune of Rs.1,82,146/-,

however the petitioner has only filed the return with regard to

Rs.18,83,940/-. He further submits that thereafter only penalty proceeding

was initiated against the petitioner. He submits that in view of Section

271(1)(c) of the said Act, the assessing officer imposed penalty of

Rs.56,285/- upon the petitioner for the said laches on behalf of the

petitioner. He further submits that offence is made out for concealment of

 4 Cr.M.P. No. 2266 of 2017

income and in view of that even if the penalty order has been set aside by

the appellate tribunal, the case cannot be quashed on that ground. He

submits that in view of the order passed by the Hon'ble Supreme Court in

Radheshyam Kejriwal v. State of West Bengal and another;

[(2011) 3 SCC 437], both proceedings can go separately. He submits that

same ratio was also there in the order passed by the Jammu and Kashmir

High Court in CRMC No.205 of 2015, dated 28.09.2018 in Arun Arya v.

Income Tax Officer. On these grounds, he submits that the entire

criminal proceeding may not be quashed.

6. In view of the above submissions of the learned counsel for the

parties, the Court has gone through the materials on record and finds that

admittedly the petitioner has already filed return with regard to income of

Rs.18,83,940/-. On Computed Assisted Scrutiny Selection (CASS), the

Income Tax Department found that the petitioner has not disclosed further

income to the tune of Rs.1,82,146/- and pursuant thereto the complaint

case has been filed. The penalty proceeding has already been initiated

against the petitioner under Section 271(1)(c) of the Income Tax Act, 1961,

whereas, the sum of Rs.56,285/- was imposed in penalty proceeding. The

said order was challenged by the petitioner before the Income Tax Appellate

Tribunal, Ranchi in ITA No.117/Ran/2016 which was decided vide order

dated 08.12.2016 and the said penalty order has been set aside. The

prosecution was initiated under Section 276C(1) of the Income Tax Act,

1961.

7. The willful default of payment of tax was the subject matter before

the Calcutta High Court in Gopal Ji Shaw v. Income Tax Officer,

Calcutta & others; [(1988) 173 ITR 554 (Cal)]. Relevant paragraphs
 5 Cr.M.P. No. 2266 of 2017

of the said judgment read as under:

“The Division Bench of this court held as follows:

"In the facts of this case, it appears to us that interest
having been charged by the Income-tax Officer up to the date
of the filing the return, the principles laid down by the
Supreme Court in M. Chandra Sekhar [1985] 151 ITR 433 are
clearly attracted. The fact that such interest was waived
Subsequently by the Commissioner of Income-tax would make
no difference in principle inasmuch as it is the primary act of
the Income-tax Officer in accepting the return filed and
charging interest up to the date of the filing which raises the
presumption of extension of time. What was waived by the
Commissioner was interest which was already charged by the
Income-tax Officer. As held by the Gujarat High Court in
Liberal Engineering Works' case [1986] 158 ITR 520, the
Income-tax Officer, having levied interest up to the date of
the filing of the return, was not justified in further invoking
the penalty proceedings. We accept the contention of the
assessee that even in the said three assessment years where
time was in fact extended by the Income-tax Officer, the
charging of interest up to the dates of the filing of the returns
after the extended period gives rise to a presumption of
further extension of time for filing of the returns,"
It is, therefore, contended that if for the delay in filing the
return, no penalty can be imposed as interest was charged,
no criminal prosecution can be initiated for such default either.
It is contended on behalf of the respondents by Mr. Mihir
Bhattacharjee, learned advocate, that since the prosecution
has been launched and the learned Metropolitan Magistrate
has taken cognizance of the same, this court should not at
this stage quash the proceeding. If the Department cannot
prove the case, the petitioner will be acquitted. He has
Submitted that the facts disclose an offence which should be
tried by the learned Metropolitan Magistrate.
I am, however, unable to accept the contentions of Mr.
Bhattacharjee.
A criminal prosecution for an offence under a special statute
must not be initiated as a matter of course where the
prosecution would involve intricate questions of interpretation
of the Income Tax Act. The Department should not rush with
the prosecution without any determination by the Income-tax
Officer of the liability of the accused-assessee which is sought
to be made the basis for prosecution. In this case, though
penalty proceeding under Section 271(1)(a) was initiated
against the petitioner for delay in filing the return, no order
has been passed. In other words, the Income-tax Officer did
not find any reason to penalise the petitioner for delay in filing
the return. In Dooars Transport's case [1986] 162 ITR 383,
this court held that once interest under section 139(8) of the
Act has been charged up to the date of filing of the return, it
must be presumed that the time to file a return was in fact
extended. A proceeding under the Income-tax Act for
imposition of penalty is quasi-criminal in nature. If the quasi-
criminal proceeding, that is to say, the proceeding for
 6 Cr.M.P. No. 2266 of 2017

imposition of penalty cannot be sustained when the Income-

tax Officer, while making the assessment, charges interest
under Section 139(8) of the Act, on a parity of reasoning, no
criminal prosecution either can be launched in such a case. In
the criminal proceeding, wilful default in filing the return has
to be established. By charging interest under Section 139(8),
the Income-tax Officer has impliedly extended the time to file
the return and the question, therefore, of wilful default in
filing the return of income does not and cannot arise. As a
matter of fact, although in this case, penalty proceeding was
initiated, it was not proceeded with thereafter, which only
goes to show that the Department did not consider it
necessary to impose any penalty after realisation of interest
under Section 139(8).
In a criminal case, it is not for the accused to establish his
innocence. The onus is on the prosecution to bring home the
guilt of the accused. Mens rea is an essential ingredient of a
criminal offence. The fact of extension of time to file the
return excludes the element of mens rea inasmuch as it must
be presumed that the Income-tax Officer, being satisfied that
there was ground for delay in filing the return, had extended
the time.
The object of launching criminal prosecution for wilful
default in complying with the provisions of the Income-tax Act
is to prevent evasion of tax. But in each and every case,
without looking into the gravity of offence and without
considering the attending circumstances, no prosecution
should be launched. Unless there is wilful default in filing the
return, no prosecution can be launched. From the complaint
that has been filed in this case, it appears that no case of
wilful default has been made out.”

8. Looking into the aforesaid judgment, it transpires that a criminal

prosecution for an offence under a special statute must not be initiated as a

matter of course where the prosecution would involve intricate questions of

interpretation of the Income Tax Act. The object of launching criminal

prosecution for willful default in complying with the provisions of the

Income Tax Act is to prevent evasion of tax.

9. The willful failure on the part of the defaulter and the nature of

penalty was again the subject matter before the Hon'ble Supreme Court in

the case of Gujrat Travancore Agency v. Commissioner of Income-

Tax, Kerala; [(1989) 177 ITR 455]. Relevant paragraphs of the said

judgment read as under:

 7 Cr.M.P. No. 2266 of 2017

“Learned counsel for the assessee has addressed an

exhaustive argument before us on the question whether a
penal- ty imposed under s. 271(1)(a) of the Act involves the
ele- ment of mens rea and in support of his submission that it
does he has placed before us several cases decided by this
Court and the High Courts in Order to demonstrate that the
proceedings by way of penalty under s. 271(1)(a) of the Act
are quasi criminal in nature and that therefore the element of
mens rea is a mandatory requirement before a penalty can be
imposed under s. 271(1)(a). We are relieved of the necessity
of referring to all those decisions. Indeed, many of them were
considered by the High Court and are referred to in the
judgment under appeal. It is sufficient for us to refer to s.
271(1)(a), which provides that a penalty may be imposed if
the Income Tax Officer is satisfied that any person has
without reasonable cause failed to furnish the return of total
income, and to s. 276C which provides that if a person wilfully
fails to furnish in due time the return of income required
under s. 139(1), he shall be punishable with rigorous
imprisonment for a term which may extend to one year or
with fine. It is clear that in the former case what is intended is
a civil obligation while in the latter what is imposed is a
criminal sentence. There can be no dispute that having regard
to the provisions of s. 276C, which speaks of wilful failure on
the part of the defaulter and taking into consideration the
nature of the penalty, which is punitive, no sentence can be
imposed under that provision unless the element of mens rea
is established. In most cases of criminal liability, the intention
of the Legislature is that the penalty should serve as a
deterrent. The creation of an offence by Statute proceeds on
the assumption that society suffers injury by and the act or
omission of the defaulter and that a deterrent must be
imposed to dis- courage the repetition of the offence. In the
case of a proceeding under s. 271(1)(a), however, it seems
that the intention of the legislature is to emphasise the fact of
loss of Revenue and to provide a remedy for such loss,
although no doubt an element of coercion is present in the
penalty. In this connection the terms in which the penalty falls
to be measured is significant. Unless there is something in the
language of the statute indicating the need of establish the
element of mens tea it is generally sufficient to prove that a
default in complying with the statute has occurred. In our
opinion, there is nothing in s. 271(1)(a) which requires that
mens tea must be proved before penalty can be levied under
that provision. We are supported by the statement in Corpus
Juris Secundum, volume 85, page 580, paragraph 1023:
"A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is
far different from the penalty for a crime or a fine or
forfeiture provided as punishment for the violation of
criminal or penal laws."
Accordingly, we hold that the element of mens rea was not
required to be proved in the proceedings taken by the
Income tax Officer under s. 271(1)(a) of the Income-tax Act
against the assessee for the assessment years 1965-66 and
 8 Cr.M.P. No. 2266 of 2017

1966-67.”

10. Looking into the aforesaid judgment, it transpires that in most of the

cases of criminal liability, the Hon'ble Supreme Court held that the intention

of the Legislature is that the penalty should serve as a deterrent. In the

case in hand, in view of the appellate order, penalty order is not there.

11. The willful failure of payment of tax was also the subject matter

before the Andhra Pradesh High Court in the case of Income-Tax Officer

v. Autofil & others; [(1990) 184 ITR 47 (AP)]. Relevant paragraph of

the said judgment reads as under:

“Therefore, wilfulness contemplates some element of evil

motive and want to justification. In CIT v. Patram Dass Raja
Ram Beri [1981] 132 ITR 671, a Full Bench of the Punjab and
Haryana High Court, considering the term "wilful failure"
occurring in section 276CC of the Income-tax Act, held that
"willfulness certainly brings in the element of guilt" and thus
the requirement of mens rea. Our Supreme Court in Gujarat
Travancore Agency v. CIT, has observed that the creation of
an offence by statute proceeds on the assumption that society
suffers injury by the act or omission of the defaulter and that
a deterrent must be imposed to discourage the repetition of
the offence. It also observed that. In most cases of criminal
liability, the intention of the Legislature is that the penalty
should serve as a deterrent.”

12. In the aforesaid judgment also, it has been held that the intention of

the Legislature is that the penalty should serve as a deterrent.

13. The Hon'ble Supreme Court in G.L. Didwania & another v.

Income-Tax Officer & another; [(1997) 224 ITR 687 (SC)] has held

that if the appellate tribunal has set aside the order of penalty, how the

criminal proceeding can be sustained. Relevant paragraph of the said

judgment reads as under:

“In the instant case, the crux of the matter is attracted and
whether the prosecution can be sustained in view of the order
passed by the Tribunal. As noted above, the assessing
authority held that the appellant-assessee made a false
statement in respect of income of Young India and Transport
 9 Cr.M.P. No. 2266 of 2017

Company and that finding has been set aside by the Income-
tax Appellate Tribunal. If that is the position then we are
unable to see as to how criminal proceedings can be
sustained.”

14. Further, if the penalty order has been struck down, criminal case

cannot survive. It has been held by the Hon'ble Supreme Court in the case

of K.C. Builders & another v. Assistant Commissioner of Income-

Tax; [(2004) 265 ITR 562 (SC)]. Relevant paragraphs of the said

judgment read as under:

“The above judgment squarely applies to the facts and

circumstances of the case on hand. In this case also, similarly,
the application was moved by the assessee before the
Magistrate to drop the criminal proceedings which were
dismissed by the Magistrate and the High Court also on a
petition filed under Sections 397 and 401 of the Code of
Criminal Procedure, 1973 to revise the order of the Additional
Chief Metropolitan Magistrate has also dismissed the same
and refused to refer to the order passed by the competent
Tribunal. As held by this Court, the High Court is not justified
in dismissing the criminal revision vide its judgment ignoring
the settled law as laid down by this Court that the finding of
the appellate Tribunal was conclusive and the prosecution
cannot be sustained since the penalty after having been
cancelled 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 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.A. Nos. 3129-3132. It is settled law
that levy of penalties and prosecution under Section 276C are
simultaneous. Hence, once the penalties are cancelled on the
ground that there is no concealment, the quashing of
prosecution under Section 276C is automatic.
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 eyes 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.
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
 10 Cr.M.P. No. 2266 of 2017

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 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 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 Tribunal exhibited as a defence document
inasmuch as the passing of the order as aforementioned is
unsustainable and unquestionable.”

15. In view of the above judgments, the Court comes to the

conclusion that once penalty order is set aside, it will be presumed

that there is no concealment and quashing of prosecution under Section

276C(1) of the Income Tax Act is automatic. The petitioner cannot be

allowed to suffer and to face criminal trial and the same cannot sustain in

the eyes of law.

16. There is no doubt that penalty proceeding and prosecution can go

simultaneously in the facts and circumstances of the cases, however, in the

case in hand, the penalty proceeding has already been set aside in view of

the appellate order. The Court finds that in view of the above judgments,

the case of the petitioner is fit to be allowed. Further, if the penalty

proceeding has been set aside, mens rea is one of the essential ingredient

of a criminal offence.

17. In view of the above facts, reasons and analysis, the entire criminal

proceedings in connection with C/2 Case No.684 of 2016 including the order
 11 Cr.M.P. No. 2266 of 2017

dated 30.05.2016 and also the order dated 15.07.2017, pending in the court

of the learned Special Judge (Economic Offence) cum Civil Judge (Sr. Div.)-

II, Jamshedpur are quashed.

18. Accordingly, this petition is allowed and disposed of.

(Sanjay Kumar Dwivedi, J.)

Ajay/ A.F.R.