Jharkhand High Court Quashes Criminal Proceedings For Delayed Tax Payment In Absence Of Any Penalty Proceedings

The Jharkhand High Court has quashed the criminal proceedings against a man accused of tax evasion under the Income Tax Act, 1961. The case involved allegations that the petitioner, a tractor dealer, failed to pay the tax liability associated with his income tax returns for the assessment year 2011-12, despite declaring the amount in his filing.

The court's decision to quash the proceedings hinged on the fact that the tax was eventually paid, albeit with some delay, and that there were no pending recovery proceedings against the petitioner.

The above petition was filed seeking the quashing of the entire criminal proceeding including the cognizance order by which, cognizance was taken for the offence under Section 276(C)(2) and 277 of the Income Tax Act, 1961 against the petitioner, one Narendar Singh, in connection with a Complaint Case pending in the court of Special Judge, Economic Offences, Jamshedpur.

The prosecution, initiated by the Income Tax Department, alleged that the petitioner had filed income tax returns declaring an income of ₹6,85,110, but failed to pay the corresponding tax liability of ₹1,00,752 at the time of filing. The petitioner's counsel argued that while the tax payment was delayed, it had been declared in the returns and was eventually paid on November 15, 2016, following a demand letter from the Assessing Officer.

Despite this payment, the Income Tax Department proceeded with prosecution, sanctioned on February 27, 2017, under Sections 276(C)(2) and 277 of the Income Tax Act. The petitioner sought to compound the offences, but this request was rejected by the Principal Commissioner of Income Tax, who cited the three-year delay in tax payment as grounds for refusal.

The prosecution was initiated by the Income Tax Department, which alleged that the petitioner filed his income tax return for the assessment year 2011-12 showing a total income of ₹6,85,110, with a declared tax liability of ₹1,00,752. According to the prosecution, the petitioner did not pay the tax at the time of filing the return, although he had declared that the tax liability had been discharged. Consequently, the Income Tax Department processed the returns under Section 143(1) of the Income Tax Act, 1961, and raised a demand of ₹1,11,730. This demand was met with a delayed payment of ₹1,11,730 on November 15, 2016, following a letter from the Assessing Officer dated November 9, 2016.

The petitioner's counsel, Advocate N.K. Pasari, argued that the tax liability was not disputed. He clarified that while the payment was delayed, the tax amount was paid along with interest on November 15, 2016. On the same day, the petitioner received a show cause notice questioning why criminal proceedings should not be initiated under Section 276(C)(2) for non-payment of admitted tax. The petitioner responded to this notice on December 27, 2016. Furthermore, the petitioner was later asked to show cause why sanction for prosecution under Section 279(1) should not be issued, to which he responded on February 22, 2017. Despite these responses, the Income Tax Department sanctioned the prosecution, and a complaint case was filed on February 27, 2017, in the court of the Special Judge, Economic Offences, Jamshedpur, under Complaint Case No. 544 of 2017.

Advocate Pasari contended that the petitioner was unaware of the criminal case until June 1, 2017, when he applied for compounding of the offenses under Sections 276(C)(2) and 277. This request was rejected by the Principal Commissioner of Income Tax on February 23, 2017, on the grounds that the tax was paid three years after the return was filed, which ignored the Ministry of Finance's guidelines issued on June 14, 2019. Pasari argued that the petitioner's only lapse was the delay in tax payment and that no tax recovery proceedings were pending. Thus, he claimed that no willful default was present and urged the court to quash the criminal proceedings.

In response, Advocate Anurag Vijay, representing the Income Tax Department, asserted that the petitioner had indeed defaulted on his tax payments. Vijay pointed out that a counter affidavit had been filed, referencing the petitioner's belated payment of tax and penalty, which he argued constituted tax evasion. Vijay also claimed that the petitioner had failed to make self-assessment tax payments for other years, justifying the criminal case.

The court examined the submissions and observed that while the petitioner had declared the tax liability in his returns, the payment was delayed. However, the tax amount was eventually deposited with interest, as per Section 240(A) of the Income Tax Act.

Justice Sanjay Kumar Dwivedi presiding over the observed, noted, “there is no proceeding pending with regard to recovery of tax or penalty against the petitioner. The willful demand of payment of tax was the subject matter before the Kolkata High Court in the case of Gopal Ji Shaw v. Income Tax Officer, Calcutta & others; reported in [(1988) 173 ITR 554 (Cal)], which was considered by this court in para-7 of the judgment relied by the learned counsel appearing for the petitioner and the same was also considered in para-9 of the same judgment, which is already quoted hereinabove and other judgments are also considered in the said judgment and thereafter the proceeding was quashed.”

The court opined that without any pending penalty proceedings and given the petitioner's compliance in paying the tax, there was no evidence of concealment of income.

The court concluded that the prosecution under Section 276(C)(2) could not be sustained in the absence of penalty proceedings. Consequently, the Jharkhand High Court quashed the entire criminal proceeding, including the cognizance order, and allowed the petition under Article 226 of the Constitution of India.

Case Title: Narendar Singh @ Narendra Singh vs Union of India

LL Citation: 2024 LiveLaw (Jha) 140

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