1987 (5) TMI 25 - HC - Income Tax

Court quashes Section 276C prosecution, upholds Section 277 for false returns. Valid sanction distinguishes mechanical order.

The court quashed the prosecution under Section 276C of the Income-tax Act as the alleged offenses predated the enactment of that section. However, the ... Offences And Prosecution Issues Involved:1. Validity of cognizance under Section 276C of the Income-tax Act.2. Validity of cognizance under Section 277 of the Income-tax Act.3. Validity of the sanction for prosecution issued by the Commissioner of Income-tax.Issue-Wise Detailed Analysis:1. Validity of Cognizance under Section 276C of the Income-tax Act:The petitioners challenged the cognizance taken by the C.J.M., Dhanbad, under Section 276C of the Income-tax Act, 1961, arguing that this section was not in existence at the time the alleged offences were committed. Section 276C, which provides for punishment for wilful attempts to evade tax, came into force on October 1, 1975. Since the assessment years in question ranged from 1963-64 to 1969-70, the court found that the alleged offences occurred before the enactment of Section 276C. The court concluded that the offences alleged against the petitioners were not covered or punishable under Section 276C of the Act, as corroborated by the Circular issued by the Income-tax Department (annexure-2). Therefore, the prosecution under Section 276C was deemed misconceived and was quashed.2. Validity of Cognizance under Section 277 of the Income-tax Act:Section 277 of the Income-tax Act is independent of Section 276C and deals with the punishment for making false statements in verification of returns. The court noted that the petitioners had initially filed false returns, which were later corrected after scrutiny by the Sales Tax Department and issuance of notices under Section 148 of the Act. The court found that the petitioners had intentionally submitted false returns at the first instance, making them prima facie liable for prosecution under Section 277. The court emphasized that Section 277 is not interlinked with Section 276C, and the petitioners could be prosecuted under Section 277 irrespective of the invalidity of the prosecution under Section 276C.3. Validity of the Sanction for Prosecution Issued by the Commissioner of Income-tax:The petitioners argued that the sanction dated March 16, 1983, was a mechanical order without the application of judicial mind, relying on the case of Mohd. Iqbal Ahmad v. State of Andhra Pradesh. The court distinguished this case, noting that Section 279 of the Income-tax Act does not require a 'sanction' but only that the prosecution be at the instance of the Commissioner. The court found that the Commissioner had applied his mind to the facts of the case and issued the necessary direction for prosecution. Although the Commissioner failed to note that Section 276C was not in existence at the time of the alleged offences, this did not invalidate the direction for prosecution under Section 277. The court held that the direction under Section 279(1) was separable for offences under Section 277 and Section 276C, and the prosecution under Section 277 was valid.Conclusion:The court allowed the application in part. The prosecution under Section 276C of the Income-tax Act was quashed, but the prosecution under Section 277 was upheld. The court emphasized that any observations made in the judgment should not prejudice the case of either party during the trial.