2024 (2) TMI 1284 - HC - Income Tax

Prosecution under Section 276CC valid despite TDS coverage and health issues affecting return filing

Vinayagam Sabarisanthanakrishnan Versus The Assistant Commissioner of Income Tax Non-Corporate Circle 14, Chennai

Madras HC dismissed a petition challenging prosecution under Section 276CC for willful failure to file income tax returns. The petitioner argued ... Offence u/s 276CC - petitioner prime facie found that the non-filing of the return was wilfull - Economic Offences - petitioner submitted that there was no wilfulness on the part of the petitioner in not filing the returns and that the petitioner had Tax Deducted at Source standing to his credit which covers the entire income earned by the petitioner during the relevant point of time and mere delay in filing the income tax returns due to ill health should not result in a prosecution - HELD THAT:- The only criterion for initiation of prosecution is that there must be a wilful failure to furnish returns as required under Section 139(1) of the Act and once that requisite is fulfilled, the statutory presumption under Section 278E starts operating and this provision brings in a statutory presumption with regard to the existence of a culpable mental state. At this stage, the Court can only presume the culpable mental status of the petitioner and the onus is upon the petitioner to prove the contrary and that can be done only at the time of the trial. There is no dispute with regard to the fact that the petitioner did not file the returns under Section 139(1) of the Act for the Assessment Year 2014-2015 on or before 31/07/2014. The petitioner for the first time, reacted only after notice u/s 148 of the Act was issued to him. It must be borne in mind that the notice u/s 148 of the Act has nothing to do with the return of income to be filed u/s 139(1) of the Act.There is no connection between the notice issued u/s 148 of the Act and the duty of the assessee to file the returns under Section 139(1) of the Act. it is not as if the petitioner has paid the tax and there was only a delay in filing the returns. The petitioner cannot assume that the Tax Deducted at Source will cover the entire tax liability for the relevant Assessment Year even without filing his returns and declaring his total income. As petitioner submitted that an appeal has been filed against the assessment order and the same is pending before the appellate authority and therefore, the prosecution cannot be continued, there is no basis for this submission and the mere pendency of the appellate proceedings is not a relevant factor for initiating prosecution proceedings u/s 276CC. Useful reference can be made to the judgment of the Apex Court in Sasi Enterprises v. CIT [2014 (2) TMI 19 - SUPREME COURT] In the instant case, the trial has already commenced and this is yet another reason as to why this Court is not inclined to interfere with the criminal proceedings which was initiated in the year 2017. Therefore, it is left open to the petitioner to raise all the grounds before the Court below and the same will be considered on its own merits and in accordance with the law. Any finding rendered in this Order will not have any bearing on the trial court while dealing with the issues involved in the case. This Criminal Original Petition stands dismissed and there shall be a direction to the Court below to complete the proceedings in E.O.C.within a period of three months from the date of receipt of copy of this Order. Issues Involved:1. Wilful failure to file income tax returns under Section 276CC of the Income Tax Act, 1961.2. Impact of delay in issuing notice under Section 148 of the Income Tax Act.3. Relevance of pending appellate proceedings on prosecution under Section 276CC.4. Statutory presumption of culpable mental state under Section 278E of the Income Tax Act.Summary:1. Wilful Failure to File Income Tax Returns:The petitioner was accused of wilful failure to file income tax returns for the Assessment Year 2014-2015 by the due date of 31/07/2014 as mandated under Section 139(1) of the Income Tax Act, 1961. Despite earning substantial income during the Financial Year 2013-2014, the petitioner did not file the returns until after receiving a notice under Section 148 in 2017. The respondent, not satisfied with the petitioner's explanation, filed a complaint under Section 276CC of the Act.2. Impact of Delay in Issuing Notice Under Section 148:The petitioner argued that the delay in issuing the notice under Section 148 affected his ability to file returns timely. However, the court clarified that the notice under Section 148 pertains to assessing escaped income and is unrelated to the obligation to file returns under Section 139(1). The court emphasized that the petitioner's failure to file returns until 2017, despite the notice, demonstrated a lack of compliance with the statutory requirements.3. Relevance of Pending Appellate Proceedings:The petitioner contended that the pending appeal against the assessment order should preclude criminal prosecution. The court dismissed this argument, referencing the Supreme Court's judgment in Sasi Enterprises v. CIT, which established that the pendency of appellate proceedings does not affect the initiation of prosecution under Section 276CC. The court held that the offence is committed by the non-filing of returns, independent of the outcome of the appellate process.4. Statutory Presumption of Culpable Mental State:The court highlighted the statutory presumption under Section 278E of the Act, which presumes the existence of a culpable mental state unless proven otherwise by the accused. The court cited the judgment in Prakash Nath Khanna & Another Vs. CIT & Another, affirming that the term 'wilfully fails to furnish in due time' applies to the period fixed under Section 139(1) and not the extended time under Section 139(4). The petitioner's argument that the delay in filing returns should not result in prosecution was rejected, as the statutory presumption of culpable mental state could only be rebutted during the trial.Conclusion:The court dismissed the petition to quash the proceedings, directing the trial court to complete the proceedings within three months. The court reiterated that the petitioner could present all defenses during the trial, and any findings in this order would not influence the trial court's determination.