Revised Returns Filed Waiving Claim And Paid Taxes: Karnataka High Court Quashes Section 276C(1) Prosecution For Wilful Tax Evasion

The Karnataka High Court has quashed the prosecution under Section 276C(1) of the Income Tax Act for wilful tax evasion.

The bench of Justice M. Nagaprasanna has observed that the assessees filed revised returns, waiving their claim for short-term capital loss and long-term capital gains, and also paid taxes, the moment the search was conducted and the assessment proceedings commenced.

In September 2015, a search operation was conducted on the petitioner/assessee, his family members, and companies that he owned. Subsequently, prosecution was initiated for offences under Section 276C(1) for intentionally evading taxes by presenting false claims for short-term and long-term capital gains and losses between AY 2010–11 and AY 2012–13.

The assessees argued that there was no mens rea at play because they surrendered all rights at the time of the search and paid the tax by filing a corrected income return. The prosecution ought to have held off until after the assessment was completed.

The department contended that there was no element of mens rea involved in any of the transactions. It is at best an incorrect claim, which would not amount to willful evasion of tax. He would contend that the moment the search was conducted and the petitioners were advised, they waived all the claims and paid the tax that was necessary to be paid by filing their revised returns on October 26, 2016. There is no willful evasion of tax.

The department contended that the petitioners did not file revised returns on their own volition. The search conducted on the premises of the petitioners revealed that they had made certain alleged bogus claims. It was only after that act that the petitioners came out and filed their revised returns. He would submit that it does amount to willful evasion of tax as if it had been undetected, it would have passed muster.

The court noted that what is necessary to be present is mens rea for prosecution and that an incorrect or erroneous claim would not amount to willful evasion, as these could be due to an erroneous interpretation of the law.

The court held that the order of the magistrate to take cognizance of an offence was illegal since it suffered from non-application of mind.

Counsel For Petitioner: Gautam Bharadwaj

Counsel For Respondent: E. I. Sanmathi

Case Title: Anurag Bagaria Versus The Income Tax Department

Case No.: Criminal Petition No.909 Of 2017

Citation: 2024 LiveLaw (Kar) 52

Click Here To Read The Order