TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the impugned show cause notice and sanction for prosecution under Section 279(1) of the Income Tax Act, 1961 are vitiated for want of jurisdiction in view of CBDT Circular No. 24/2019 dated 09.09.2019 and Circular No. 5/2020 dated 23.01.2020, particularly regarding the requirement of approval by a collegium of two CCIT/DGIT rank officers where the tax effect is Rs. 25 lakh or below.
1.2 Whether initiation and sanction of criminal prosecution under Sections 276C(1), 277 and 277A of the Income Tax Act, 1961 are sustainable when no assessment or penalty proceedings have been initiated or are pending in respect of the alleged tax evasion.
1.3 Whether the impugned show cause notice and sanction for prosecution stand vitiated for violation of principles of natural justice due to non-furnishing of relied-upon documents/materials and refusal to grant reasonable time to respond despite a specific written request.
1.4 Whether, in the above circumstances, a prima facie case is made out for continuation of the writ petition and for grant of interim stay of further proceedings pursuant to the impugned sanction order.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Jurisdictional validity of sanction under Section 279(1) in light of CBDT Circulars
Legal framework (as discussed):
2.1 The Court set out and relied upon para 2(iii) of CBDT Circular No. 24/2019 dated 09.09.2019 and its modification by Circular No. 5/2020 dated 23.01.2020. The circulars prescribe that:
(a) For offences under Section 276C(1), cases where the amount sought to be evaded or tax on under-reported income is Rs. 25 lakh or below shall not be processed for prosecution except with the previous administrative approval of a collegium of two CCIT/DGIT rank officers.
(b) Prosecution under Section 276C(1) shall ordinarily be launched after confirmation of penalty by the Income Tax Appellate Tribunal, while clarifying that in other deserving cases, including those under Sections 132/132A/133A, prosecution may be launched at any stage of proceedings with prior approval of the collegium of two CCIT/DGIT rank officers.
Interpretation and reasoning:
2.2 The petitioner contended that: (i) the alleged evaded income is Rs. 27,31,215/-, and the resultant "tax effect" is below Rs. 25 lakh; (ii) in such a situation, under the circulars read with Section 279, the sanctioning authority must be a collegium of two Principal Chief CIT/CCIT/DGIT rank officers; (iii) in the present case, sanction was accorded by the Principal Commissioner of Income Tax alone, contrary to the mandatory requirement of collegium approval; and (iv) there was no assessment or penalty proceeding initiated or pending at the time of issuance of the show cause notice and sanction.
2.3 The Court recorded that learned counsel for the Revenue could not dispute that, on the face of the record, the approval in this case by the Principal CIT, and not by a collegium of two CCIT/DGIT rank officers, was contrary to the cited CBDT circulars, which contemplate collegium approval in such cases.
2.4 The Court noted that the challenge to the impugned show cause notice and sanction order therefore directly involved interpretation of Sections 276C(1), 277, 277A and 279(1) of the Income Tax Act, 1961, and the above CBDT circulars, and that the jurisdiction of the sanctioning authority itself was under serious challenge.
Conclusions:
2.5 The Court concluded that the question of legality and validity of the impugned show cause notice and sanction order, including the jurisdiction of the authority initiating the prosecution in light of CBDT Circulars No. 24/2019 and 5/2020, raises substantial issues which require final adjudication after exchange of affidavits and cannot be dismissed at the motion stage.
2.6 On this basis, the Court held that the petitioner has made out a prima facie case for interim protection and for keeping the writ petition alive for final hearing.
Issue 2: Sustainability of prosecution where no assessment/penalty proceedings are initiated or pending
Legal framework (as discussed):
3.1 The Court referred to para 2 of Circular No. 24/2019 noting that prosecution is a criminal proceeding and that, based upon evidence gathered, the offence has to be proved "beyond reasonable doubt". The circular prescribes criteria for launching prosecution and, as modified by Circular No. 5/2020, allows prosecution to be launched at any stage of the proceedings before an Income Tax Authority in certain cases with collegium approval.
Interpretation and reasoning:
3.2 The petitioner argued that the circulars, read as a whole, postulate launching of prosecution only where the offence is established beyond reasonable doubt and at least in the context of ordinary cases (outside the expressly excepted categories), after imposition and confirmation of penalty; whereas in the present case: (i) no assessment proceeding or penalty proceeding had been initiated or concluded; (ii) there was no proceeding pending on the date of the show cause notice or sanction; and (iii) the show cause notice's allegations were not supported by disclosed documents or material.
3.3 The Court noted these submissions and emphasised that the matter involves interpretation of the interplay between Sections 276C(1), 277, 277A and 279(1) and the said CBDT circulars, including the question whether, and in what manner, prosecution can be validly launched in the absence of assessment or penalty proceedings.
Conclusions:
3.4 The Court did not finally determine whether prosecution is legally impermissible without initiation or pendency of assessment/penalty proceedings but held that this legal and jurisdictional challenge is substantial and warrants full consideration on affidavits at the final hearing.
3.5 The existence of this unresolved but weighty issue contributed to the Court's finding of a prima facie case justifying interim protection.
Issue 3: Alleged violation of principles of natural justice in issuing show cause and granting sanction
Interpretation and reasoning:
4.1 The petitioner specifically alleged that: (i) by letter dated 08.06.2023, he requested the authority to furnish the basis, relied-upon material, documents, evidence, and detailed calculation used to compute the alleged undisclosed income, and sought time of at least 15 days to respond effectively; (ii) the show cause notice itself did not disclose any material, document or evidence demonstrating suppression of real income; and (iii) despite this, the respondent proceeded to grant sanction for prosecution without supplying the requested materials or granting the requested time, thereby rendering the show cause notice an idle formality and demonstrating a predetermined mind.
4.2 The Court reproduced the critical paragraphs (4 to 8) of the petitioner's letter dated 08.06.2023 to highlight the nature of the request for documents and extension of time, and the assertion that, without such materials, an effective reply to the show cause notice was impossible and the principles of natural justice would be undermined.
4.3 The Court recorded that learned counsel for the Revenue could not deny: (i) that there was patent violation of principles of natural justice in not considering the petitioner's detailed written request for materials and time; and (ii) that the authorities did not furnish any cogent reason or explanation as to why the requested documents and materials could not be supplied before according sanction.
4.4 The Court further noted that counsel for the Revenue fairly submitted that all issues raised are legal and jurisdictional, and can only be properly addressed by disclosure of supporting materials through an affidavit-in-opposition, and he did not advance substantive arguments in opposition to the prayer for interim relief.
Conclusions:
4.5 The Court held that, having regard to the uncontroverted allegations that the petitioner's request for documents and reasonable time was not considered and that the sanction was granted without furnishing the relied-upon materials, a serious issue regarding violation of principles of natural justice arises.
4.6 The Court concluded that this alleged violation, coupled with the jurisdictional and circular-compliance issues, establishes a prima facie case warranting final adjudication and militates against rejection of the writ petition at the motion stage.
Issue 4: Entitlement to interim relief and continuation of writ proceedings
Interpretation and reasoning:
5.1 Taking together: (i) the apparent inconsistency between the sanctioning authority's rank and the collegium requirement in the CBDT circulars for cases where the tax effect is Rs. 25 lakh or below; (ii) the absence of assessment or penalty proceedings; (iii) the non-furnishing of relied-upon documents and refusal to grant time despite a specific written request; and (iv) the Revenue's inability to substantively defend these actions at the motion stage, the Court found that the petitioner had made out a strong prima facie case.
5.2 The Court observed that the issues raised are legal, jurisdictional and evidence-based, and necessarily require consideration on affidavits. It held that, in such circumstances, the writ petition could not be dismissed at the threshold.
Conclusions:
5.3 The Court directed the respondents to file affidavit-in-opposition within four weeks, with liberty to the petitioner to file reply within three weeks thereafter, and directed that the matter be listed for final hearing in the monthly list of October 2023.
5.4 Pending final adjudication, the Court granted interim relief by ordering stay of all further proceedings on the basis of the impugned sanction order under Section 279(1) of the Income Tax Act, 1961, dated 12.06.2023, until 17.11.2023 or until further orders, whichever is earlier.
TaxTMI 
