2021 (4) TMI 316 - HC - Income Tax

Court affirms officer's authority to file complaints, Special Court erred in discharging accused. Prosecution deemed premature and illegal.

The court upheld the competency of the authorized officer to file complaints under section 276C(1) of the Income Tax Act and the Principal Director of ... Offences punishable under section 276C(1) of the Income Tax Act, 1961 read with sections 201 and 204 of IPC - unaccounted financial transaction as concluded as per documents found in search - Documents destroyed by the respondent/assessee - During the course of search, the respondent took out a piece of paper from his wallet and tore it in front of the officers which contained certain unaccounted loan transactions with several persons / entities -Whether the complaints presented by the authorized officer Sri.Sunil Goutam are without authority of law? - Whether the Principal Director of Income Tax (Investigation) Bangalore was competent to issue authorization to prosecute the respondent for the alleged offences punishable under section 276C(1) of the Income Tax Act, 1961 read with sections 201 and 204 of IPC? - HELD THAT:- As per the notification issued by the Government of India, Ministry of Finance dated 13.11.2014, in exercise of the powers conferred by sub-sections (1) and (2) of section 120 of the Income Tax Act, 1961 and in supersession of the earlier notifications of the Government of India, the Central Board of Direct Taxes the authorization made in favour of Sri.T.Sunil Goutam, Deputy Director of Income Tax (Investigation), Unit-3(1), Bengaluru, is in consonance with the provisions of the Income Tax Act and does not suffer from any error or illegality as sought to be made out by learned Senior Counsel for respondent and hence, the contentions urged by learned Senior Counsel for respondent in this regard are rejected. Prosecution under section 276C(1) of the Income Tax Act - The gist of the offence under section 276C(1) is the wilfull attempt to evade any tax, penalty or interest chargeable or imposable or under reports of the income. What is made punishable is 'attempt to evade tax, penalty or interest' and not the 'actual evasion of the tax'. The expression 'attempt' is nowhere defined under the Act or IPC. In legal parlance, an 'attempt' is understood to mean 'an act or movement towards commission of a intended crime'. It is doing 'something in the direction of commission of offence'. Viewed in that sense 'in order to render the accused / respondent guilty of attempt to evade tax, penalty or interest, it must be shown that he has done some positive act with an intention to evade any tax, penalty or interest' as held in PREM DASS vs. INCOME TAX OFFICER [1999 (2) TMI 6 - SUPREME COURT] that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence under section 276C(2) of the Act. In the instant cases, the only circumstance relied on by the learned counsel for petitioner / complainant in support of the alleged charges is that, during the search action, certain unaccounted loan transaction with the several persons / entities were detected and it was ascertained that the respondent had advanced huge amount of loan to these persons / entities and the said unaccounted financial transactions were not disclosed in his returns of income for the relevant years and that the respondent had received huge amount of interest on the said unaccounted loan. These allegations, even if accepted as true, the same do not prima facie constitute offences under section 276C(1) of the Income Tax Act. Tax, penalty or interest could be evaded provided tax or penalty is chargeable or imposable in respect of the above transactions. There is no presumption under law that every unaccounted transaction would lead to imposition of tax, penalty or interest. Therefore, until and unless it is determined that the unaccounted transactions unearthed during search were liable for payment of tax, penalty or interest, no prosecution could be launched on the ground of attempt to evade such tax, penalty or interest. As a result, the very prosecution launched against the respondent being premature and illegal cannot be allowed to continue. No justifiable reason to interfere with the impugned orders. As the prosecution initiated against the respondent is bad in law and contrary to the procedure prescribed under the Code of Criminal Procedure and the provisions of the Income Tax Act, the revision petitions are liable to be dismissed. Issues Involved:1. Jurisdiction of the authorized officer to file complaints under section 276C(1) of the Income Tax Act.2. Competency of the Principal Director of Income Tax (Investigation) to issue authorization for prosecution.3. Justification of the Special Court in discharging the accused under section 245 of Cr.P.C.4. Interpretation and application of sections 132(5), 132(9A), 279, 276C(1) of the Income Tax Act, and sections 201 and 204 of IPC.Analysis:Jurisdiction of the Authorized Officer:The court examined whether the complaints filed by the Deputy Director of Income Tax (Investigation) were within his jurisdiction. The petitioner argued that the authorized officer, empowered by a sanction order under section 279(1) of the Income Tax Act, was competent to file the prosecution complaints. The court upheld this view, stating that the authorization made by the Principal Director of Income Tax (Investigation) was valid and in consonance with the provisions of the Income Tax Act. The court rejected the respondent's contention that the authorized officer became functus officio after handing over the search material to the jurisdictional assessing officer.Competency of the Principal Director of Income Tax (Investigation):The court addressed whether the Principal Director of Income Tax (Investigation) had the authority to issue authorization for prosecution. It was noted that the Principal Director had issued a sanction for prosecution and authorized the Deputy Director to file complaints. The court found this authorization to be legally sound, supported by a notification from the Ministry of Finance, which empowered the Director General of Income Tax and the Principal Director to issue such authorizations.Justification of the Special Court in Discharging the Accused:The court analyzed whether the Special Court was justified in discharging the accused under section 245 of Cr.P.C. The Special Court had discharged the accused on the grounds that the complaints were filed without jurisdiction and that the document attempted to be destroyed did not meet the criteria for sections 201 and 204 of IPC. The High Court found that the Special Court had erred in its procedure by directly entertaining the complaints and issuing summons without taking cognizance of the offences. The court concluded that the Special Court lacked original jurisdiction to take cognizance of the offences under Chapter XXII of the Income Tax Act unless the accused was committed for trial.Interpretation and Application of Relevant Sections:The court examined the interpretation and application of sections 132(5), 132(9A), 279, and 276C(1) of the Income Tax Act, along with sections 201 and 204 of IPC. It was emphasized that section 276C(1) pertains to the 'willful attempt to evade tax,' which does not require quantification of the exact amount of tax evaded. The court noted that the prosecution could be launched based on the material gathered during the search, even before the tax liability was quantified. The court also highlighted that the offences under sections 201 and 204 of IPC were non-cognizable and should be treated as such.Conclusion:The court concluded that the prosecution initiated against the respondent was premature and illegal, as it was based on unaccounted transactions that had not yet been determined to be liable for tax, penalty, or interest. Consequently, the revision petitions were dismissed, and the orders of the Special Court discharging the accused were upheld, albeit for different reasons. The court granted liberty to the complainant to file fresh complaints before the competent court, following the proper legal procedure.