1989 (3) TMI 102 - HC - Income Tax

Court quashes criminal complaints under Income-tax Act, finding lack of mens rea.

The court quashed criminal complaints under sections 276C and 277 of the Income-tax Act, 1961, against the petitioners. It found that the revised returns ... Offences And Prosecution Issues Involved:1. Quashing of complaints under sections 276C and 277 of the Income-tax Act, 1961.2. Validity of revised income-tax returns filed under alleged settlement.3. Protective assessment and its implications.4. Mens rea (intent) in tax evasion under section 276C.Issue-wise Detailed Analysis:1. Quashing of complaints under sections 276C and 277 of the Income-tax Act, 1961:The petitioner sought to quash the complaints filed by the Income-tax Officer under sections 276C and 277 of the Income-tax Act, 1961, which pertain to willful attempt to evade tax and making false statements in verification, respectively. The petitioner argued that the revised returns were filed based on an assurance by the Income-tax Department that no penalties, interest, or prosecution would be initiated. However, the Department denied giving such assurances and argued that the petitioner had filed returns with false verifications, making him liable under section 277. The court examined the complaints and found that the petitioner was being prosecuted for filing original returns with false verification, knowing them to be false, thus making him liable under section 277.2. Validity of revised income-tax returns filed under alleged settlement:The petitioner claimed that the revised returns were filed following a settlement with the Income-tax Department. The Department, however, denied any formal settlement, stating that the revised returns were filed based on the petitioner's proposals, which were examined and found acceptable. The court noted that the revised returns were filed under the belief of a settlement, but the Department did not formally agree to any settlement that would preclude prosecution.3. Protective assessment and its implications:The petitioner argued that the assessments were protective and would become nullities if it was determined that the income belonged to another person, specifically Shri M. P. S. Minhas. The Department contended that protective assessments are valid until it is conclusively determined that the income belongs to another person. The court acknowledged that protective assessments are legitimate unless the income is reassigned to another individual, in which case the protective assessment would be nullified.4. Mens rea (intent) in tax evasion under section 276C:The court emphasized the necessity of 'wilful' intent to evade tax under section 276C, which implies the presence of mens rea. The court referenced the case of B. T. X. Chemicals Pvt. Ltd. v. Suraj Bhan, ITO, which held that dishonest or mala fide intention is required for prosecution under section 276C. The court found that the petitioner's initial returns were not necessarily false, and the revised returns were filed due to ongoing settlement talks, which lacked the mens rea required for prosecution under section 276C.Conclusion:The court concluded that the revised returns were filed due to settlement discussions and that the protective assessments would be nullified if the income was found to belong to another person. Given the absence of mens rea, the court quashed the criminal complaints under sections 276C and 277 of the Income-tax Act, 1961, against the petitioners. The court accepted all four petitions and quashed the criminal complaints involved therein.