2022 (8) TMI 1032 - HC - Income Tax

Court quashes tax evasion prosecution, emphasizing need for willful intent

The court in E.O.C.C.No.12 of 2018 quashed the prosecution, ruling that the accused did not willfully evade tax or make false statements under Sections ... Offences u/s 276C(1) and 277 - assessee has not invested the sale consideration to acquire residential house as provided u/s 54F of the Act, since he has invested in an industrial property - Penal proceedings were also initiated under Section 271[1][c] for wrong claim of deduction u/s 54F - case of the prosecution that the accused has willfully attempted to evade the tax by making a false claim, which were not allowable under the provisions of the Income Tax Act - HELD THAT:- To attract the offence, the prosecution must establish the fraudulent removal and concealment, transfer or deliver of any property or any interest thereon with intend to prevent the property and interest thereon in order to evade the tax. The very crux of the allegation in the complaint indicate that the accused has sold house property to construct a building in the industrial site. The prosecution case is that the amount ought to have been invested in the house property. It is also admitted by the prosecution that the assessee has claimed exemption under Section 54F. The very averment in the complaint itself indicates that there is no concealment or willful suppression of any materials, what was sought for is exemption under Section 54F of the Income Tax Act. Of course, an Assessment Officer has not accepted the claim for exemption under Section 54F of the Act. Accordingly, the Assessment Order passed by the authorities were upheld by the Tribunal which is not disputed. It is the fact that the accused has not purchased residential house. It is the bona fide claim of assessee that on the sale of property he has purchased the another property. The fact remains that the another property, which is supported his case, only a residential house not an industrial property. On relying upon the judgment of the CIT vs. Reliance Petroproducts (P) Ltd.,[2010 (3) TMI 80 - SUPREME COURT] wherein the Apex court explained that whether a claim simply not accepted by the A.O., it does not mean that it is a concealment of income or furnishing of inaccurate particulars of income so that penalty can be levied. Accordingly, the penalty imposed is set aside by the Appellate Tribunal. The penalty proceedings also reached finality, no further appeal is filed. As it is not observed anywhere that the assessee claimed false or bogus it cannot be said that there is concealment or wilful evasion of the Tax. When the Tribunal has held that the Assessee has made bona fide claim it cannot be held that there was willful evasion of tax. It is not the case of the Assessing Officer that the Claim is false or bogus. Thus as in this case income has not suppressed only exemption has been claimed. It is also observed in the penalty proceedings that no suppression of materials it is only bona fide. In such a view of the matter this Court is of the view that continuation of the prosecution is nothing but futile exercise and abuse of process of law. Accordingly, the complaint in E.O.C.C.No.12 of 2018 pending on the file of the learned Additional Chief Matropolitan Magistrate, Economic Offences- II, Egmore, Chennai for the the offence under Section 276C(1) and 277 of the Income Tax Act, 1961 is quashed and the Criminal Original Petition is ordered. Issues Involved:1. Alleged willful attempt to evade tax under Section 276C(1) of the Income Tax Act, 1961.2. Alleged false statement under Section 277 of the Income Tax Act, 1961.3. Validity of prosecution based on claimed exemption under Section 54F of the Income Tax Act.4. Relevance of findings in penalty proceedings and adjudication by the Income Tax Appellate Tribunal (ITAT).5. Applicability of legal precedents and judicial decisions in similar cases.Detailed Analysis:1. Alleged Willful Attempt to Evade Tax (Section 276C(1)):The prosecution's case hinges on the allegation that the accused willfully attempted to evade tax by claiming a deduction under Section 54F of the Income Tax Act, which was not allowable because the property purchased was industrial, not residential. The Assessing Officer disallowed the deduction, resulting in a higher tax liability. However, the defense argued that the claim was made bona fide and not with the intent to evade tax. The ITAT found no evidence of fraudulent removal, concealment, or false claim, emphasizing that the claim was rejected merely because the property did not qualify as residential.2. Alleged False Statement (Section 277):The prosecution also alleged that the accused made false statements in their tax filings. However, the ITAT and penalty proceedings did not find any false or bogus claims. The defense highlighted that the accused disclosed all relevant facts and claimed the deduction in good faith. The court noted that a mere rejection of the claim by the Assessing Officer does not constitute a false statement or willful evasion of tax.3. Validity of Prosecution Based on Claimed Exemption (Section 54F):The defense argued that the prosecution under Sections 276C(1) and 277 cannot be maintained because the claim for exemption under Section 54F was made bona fide. The court observed that the ITAT had set aside the penalty, finding no concealment or willful suppression of facts. The court emphasized that the prosecution must establish a willful attempt to evade tax, which was not demonstrated in this case.4. Relevance of Findings in Penalty Proceedings and ITAT Adjudication:The court referred to the ITAT's findings, which indicated that the accused had not concealed income or furnished inaccurate particulars. The ITAT's decision to cancel the penalty was based on the principle that a bona fide claim, even if rejected, does not amount to concealment or willful evasion. The court also cited several judicial precedents, including the Supreme Court's rulings in *CIT vs. Reliance Petroproducts (P) Ltd.* and *G.L. Didwania & Another vs. Income Tax Officer*, which support the view that criminal proceedings cannot be sustained if the adjudicatory body finds no fraudulent intent.5. Applicability of Legal Precedents and Judicial Decisions:The court relied on various judgments to support its decision, including:- *Radheshyam Kejriwal vs. State of West Bengal*: Establishing that exoneration in adjudication proceedings on merits can impact the continuation of criminal prosecution.- *G.L. Didwania & Another vs. Income Tax Officer*: Highlighting that criminal proceedings cannot be sustained if the appellate authority finds no false statement or concealment.- *Commissioner of Income Tax, Mumbai vs. Bhupen Champal Lal Dalal*: Emphasizing that criminal prosecution should await the outcome of appellate proceedings when relevant findings are made.Conclusion:The court quashed the prosecution in E.O.C.C.No.12 of 2018, concluding that the accused's actions did not constitute willful evasion of tax or false statements under Sections 276C(1) and 277 of the Income Tax Act. The court emphasized that the accused made a bona fide claim for exemption, which was not accepted by the Assessing Officer, and there was no evidence of fraudulent intent or concealment. The court's decision was guided by the ITAT's findings and relevant judicial precedents, which underscored the importance of establishing willful intent in tax evasion cases.