2025 (2) TMI 237 - HC - Income Tax

Penalty payment for delayed income tax returns doesn't exempt from criminal prosecution under Section 276CC

Rajkumar Agarwal Versus Income Tax Department Bidar.

Rajkumar Agarwal Versus Income Tax Department Bidar. - 2025:KHC - K:238 ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Court was whether the initiation of criminal proceedings against the petitioner for the alleged offense under Section 276CC of the Income Tax Act was justified. Specifically, the Court examined whether the petitioner willfully failed to submit income tax returns in due time for the assessment years 2012-13 to 2015-16 and whether the presumption of culpable mental state under Section 278E of the Income Tax Act could be rebutted by the petitioner.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 276CC of the Income Tax Act deals with the offense of willful failure to furnish returns of income within the prescribed time. The section prescribes penalties, including imprisonment, for such failure. Section 278E introduces a presumption of culpable mental state, placing the burden on the accused to prove the absence of such a mental state. The Court referenced precedents, including the Supreme Court's decisions in Sasi Enterprises and V.P. Punj, which emphasized the presumption of mens rea under Section 278E and the requirement for the accused to rebut this presumption beyond reasonable doubt.Court's Interpretation and ReasoningThe Court interpreted Section 276CC as encompassing failures to comply with Section 139(1) or to respond to notices under Sections 142 or 148. The proviso to Section 276CC was noted to apply only to voluntary filings under Section 139(1). The Court highlighted that the payment of penalties for delayed filing does not preclude prosecution under Chapter 22 of the Income Tax Act. The Court emphasized that the presumption under Section 278E requires the accused to prove the absence of a willful default, shifting the burden of proof to the petitioner.Key Evidence and FindingsThe petitioner admitted to the delay in filing returns for the specified years and the payment of penalties. The respondent argued that the presumption under Section 278E had not been rebutted, and the petitioner had been given an opportunity to object to the sanction order, which was disposed of by a Speaking Order. The Court found no merit in the petitioner's claim of not being heard by the competent authority.Application of Law to FactsThe Court applied the legal framework to the facts, determining that the presumption of culpable mental state under Section 278E was applicable. The petitioner had not provided sufficient evidence to rebut this presumption. The Court found that the petitioner's reliance on the case of C.P. Yogeshwara was misplaced, as that decision did not consider the presumption under Section 278E.Treatment of Competing ArgumentsThe petitioner argued that the delay was not willful, citing personal circumstances and the payment of penalties. The respondent countered that the presumption of mens rea had not been rebutted and that the payment of penalties did not preclude criminal prosecution. The Court sided with the respondent, emphasizing the statutory presumption and the need for the petitioner to rebut it before the Magistrate.ConclusionsThe Court concluded that the petitions lacked merit, as the petitioner failed to rebut the presumption of culpable mental state. The Court dismissed the petitions, allowing the petitioner to raise defenses before the Magistrate.SIGNIFICANT HOLDINGSThe Court held that the presumption of culpable mental state under Section 278E of the Income Tax Act requires the accused to prove the absence of such a state beyond reasonable doubt. The Court emphasized that the payment of penalties does not absolve the petitioner from criminal prosecution under Section 276CC. The Court also noted that the petitioner had been given an opportunity to object to the sanction order, which was duly considered by the competent authority.Core Principles EstablishedThe judgment reinforced the principle that the presumption of mens rea under Section 278E places the burden on the accused to disprove willful default in filing returns. The Court highlighted that penalties and criminal prosecution are distinct consequences under the Income Tax Act, and one does not negate the other.Final Determinations on Each IssueThe Court determined that the initiation of criminal proceedings against the petitioner was justified, given the failure to rebut the presumption under Section 278E. The petitions were dismissed, with the petitioner allowed to present defenses before the Magistrate.