2024 (2) TMI 1284 - HC - Income Tax

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

Madras HC dismissed a petition challenging prosecution under Section 276CC for willful failure to file income tax returns. The petitioner argued ... Wilful failure to furnish return under Section 139(1) - statutory presumption as to culpable mental state under Section 278E - prosecution under Section 276CC - filing of return after notice under Section 148 not a defence to criminal liability under Section 276CC - pendency of assessment or appeal not a bar to prosecutionWilful failure to furnish return under Section 139(1) - prosecution under Section 276CC - Quashing of prosecution under Section 276CC for non-filing of return for Assessment Year 2014-2015 - HELD THAT: - The Court found that the petitioner did not file the return under Section 139(1) within the prescribed time and only reacted after receipt of a notice under Section 148. The notice under Section 148 is for escaped income assessment and is distinct from the duty to file the original return within the time fixed by Section 139(1). Filing a return after issuance of notice under Section 148 or under the extended provisions does not negate the infraction of non-filing within the due time envisaged by Section 139(1). On the materials placed before it a prima facie case of wilful failure to furnish return was made out and the statutory presumption under Section 278E is attracted, a matter which the petitioner must rebut at trial. In these circumstances the Court declined to quash the prosecution at the threshold. [Paras 9, 10, 11, 17]Petition to quash prosecution under Section 276CC dismissed; prima facie wilful failure established and matter left to trial.Statutory presumption as to culpable mental state under Section 278E - Applicability and effect of Section 278E presumption in criminal prosecution for non-filing - HELD THAT: - The Court reiterated that Section 278E mandates a presumption of culpable mental state in prosecutions requiring such state, shifting the onus to the accused to prove absence of that state beyond reasonable doubt. Because of this statutory presumption, the exercise of the High Court's power under Section 482 of the CrPC is limited; the court should not reappreciate evidence to negativate wilfulness at the threshold. Determination of wilfulness is essentially factual and requires trial where the petitioner may rebut the presumption by evidence. [Paras 11, 15, 16]Section 278E operates to create a presumption of culpable mental state which the petitioner must rebut at trial; threshold quashing is inappropriate.Filing of return after notice under Section 148 not a defence to criminal liability under Section 276CC - pendency of assessment or appeal not a bar to prosecution - Whether pendency of assessment/appeal or filing return after issuance of Section 148 notice bars prosecution under Section 276CC - HELD THAT: - The Court held that pendency of assessment or an appeal against the assessment is not a ground to stay or quash criminal proceedings under Section 276CC; the statutory scheme does not provide for withholding prosecution until assessment proceedings conclude. Further, filing a return only after issuance of notice under Section 148 cannot be treated as curing the earlier failure to file 'in due time' as required by Section 139(1) and so does not negate criminal liability for wilful non-filing. The Court relied on binding principles that prosecution arises from the offence of non-filing within the time fixed and is unaffected by subsequent assessment processes. [Paras 5, 12, 13]Pendency of assessment/appeal or belated filing post-Section 148 notice does not bar prosecution; such contentions are matters for the trial court.Final Conclusion: Criminal Original Petition dismissed; prosecution under Section 276CC may continue, with direction to the trial court to complete proceedings in E.O.C.No.507 of 2017 within three months from receipt of the order; all factual and legal defences left open for trial. 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.