1996 (9) TMI 57 - HC - Income Tax

Court rules to continue criminal proceedings despite set aside penalty, awaiting Tribunal's decision.

MA Quddus Versus Income-Tax Officer

The court declined to quash the criminal proceedings before the Special Judge for Economic Offences, holding that the prosecution should not be terminated ... Wilful Attempt To Evade Tax Issues:1. Whether the criminal proceedings before the Special Judge for Economic Offences should be quashed due to alleged abuse of process of the court.2. Whether the penalty proceedings being set aside by the Deputy Commissioner of Income-tax (Appeals) warrant the quashing of the criminal prosecution.3. Whether the prosecution can continue when penalty proceedings have been cancelled.4. Whether the criminal court should have taken cognizance of the offence when penalty proceedings were pending.Analysis:1. The petitioner filed criminal petitions seeking to quash proceedings before the Special Judge for Economic Offences, Hyderabad, under sections 276C and 277 of the Income-tax Act for assessment years 1986-87 and 1987-88. The petitioner argued that initiating prosecution after setting aside penalty proceedings would be an abuse of process. The Income-tax Department contended that penalty proceedings were not final as appeals were pending before the Income-tax Appellate Tribunal. The court noted that departmental proceedings and criminal prosecution are distinct, and relied on various judgments to support this view. The court held that the prosecution should not be quashed at that stage.2. The court considered the judgment in Uttam Chand v. ITO, where the Supreme Court held that if departmental proceedings are set aside, the prosecution based on the same facts should be quashed. However, in the present case, as the appeals against the cancellation of penalty were pending, the court decided to stay the criminal proceedings until the Income-tax Appellate Tribunal's decision. The court directed the criminal court to dispose of the cases based on the Tribunal's findings.3. The court analyzed the legal position regarding simultaneous penalty proceedings and criminal prosecution. Relying on precedents, the court emphasized that penalty proceedings and prosecution can proceed independently. The court highlighted that the cancellation of penalty does not automatically lead to the quashing of criminal prosecution. The court decided to wait for the outcome of the appeals before the Income-tax Appellate Tribunal before proceeding with the criminal cases.4. The court addressed the issue of whether the criminal court should have taken cognizance of the offence when penalty proceedings were pending. The court considered the facts and arguments presented by both parties, emphasizing the distinction between departmental proceedings and criminal prosecution. The court concluded that the criminal court's proceedings would depend on the outcome of the appeals before the Income-tax Appellate Tribunal, directing the criminal court to act accordingly after the Tribunal's decision.Overall, the court held that the prosecution should not be quashed at that stage due to the pending appeals before the Income-tax Appellate Tribunal. The court decided to stay the criminal proceedings until the Tribunal's decision and instructed the criminal court to proceed based on the Tribunal's findings.