2025 (10) TMI 958 - HC - Income Tax

Section 276C(2): Failure to pay self-assessment tax later is not proof of willful evasion without rebuttal.

Vilas Babanrao Kalokhe Versus Principal Commissioner of Income Tax (Central) Pune, The Asst. /Dy. Commissioner of Income Tax, Central Circle – 2 (1), Pune, Additional Commissioner of Income Tax, Central Range – 2, Pune, State of Maharashtra, Union of India.

HC held that prosecution under section 276C(2) was unsustainable because the complaint did not establish 'willful evasion' of tax. Although the assessee ... Willful default as contemplated as per the provision of 276C (2) - difference in between ‘failure’ and ‘evasion’ -'willful evasion' to prosecutions u/s 276C(2) - Argument of the Assessee that there is no willful default and in fact he has paid the amount of Income Tax due as per self assessment - whether there is willful evasion to pay the tax? HELD THAT:- As no dispute that the assessee has failed to deposit self-assessment tax before or atleast along with the return, he deposited it subsequently. When there are different provisions in Income Tax Act about filing of prosecution, the observations in one judgment may be applicable to another case only when both these cases deal with similar contingencies. So to say observations made “in a case of willful attempt to evade payment of tax” will be relevant while dealing with present controversy. So to say if there is ‘willful evasion of tax’ (not simply payment of tax) the observations may not be fully applicable while dealing with present case. Similarly, the provisions of 276-B of the said Act stands on different footing. The title of Section is ‘Failure to pay tax to the credit of Central Government under Chapter XII – D or XVII-B’. As the title of Section 276(C) indicates, the word ‘failure’ is absent. There is a difference in between ‘failure’ and ‘evasion’. Because once you have deducted a tax from the income of other person (who is liable), such person is bound to credit it. That omission itself is an offence without addition of willfulness / intension; but the legislatures have cautiously used the word ‘ willful evasion ’ in Section 276-C of the Income Tax Act. It indicates there maybe cases wherein there is a genuine case for not paying tax on or before the due date even though return is submitted. In a given case, such failure cannot be considered as a willful evasion. Such cases will be outside the clutches of Section 276-C of the Income Tax Act. From the above discussion, it cannot be inferred that assessee has committed willful default in paying the tax alongwith the return. The averments in complaint fall short to draw an inference of the willfulness of the assessee. The assessee has pleaded about financial difficulties. This can be considered as evasion. The department ought to have pleaded that these financial difficulties are not real financial difficulty but just an excuse. The burden of proof can be shifted at a later stage. The presumption of culpableness comes at a later stage only when the ingredients are satisfied at the beginning. ISSUES PRESENTED AND CONSIDERED 1. Whether the ingredients of Section 276C(2) of the Income Tax Act (willful attempt to evade payment of tax) are made out where self-assessment tax was not paid along with the return but was paid subsequently. 2. Whether writ jurisdiction under Article 227 is available to quash the order issuing process in a prosecution under Section 276C(2) when the complaint and annexed documents do not, on their face, establish willful evasion. 3. The relevance and applicability of precedents concerning TDS/Section 276B and other authorities on 'willful evasion' to prosecutions under Section 276C(2) dealing with self-assessment tax. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether ingredients of Section 276C(2) are made out where tax was paid after filing the return Legal framework: Section 276C is titled 'willful attempt to evade tax etc.' Sub-section (2) specifically penalizes non-payment of tax (payment of tax being part of the offence) and requires willful attempt to evade payment; Section 140A mandates payment of self-assessment tax before or along with the return. Precedent treatment: Decisions dealing with Section 276B (TDS/crediting tax to Government) and certain authorities on willful evasion were cited by the Revenue; a recent Single Judge decision was cited by the petitioner which quashed prosecution under 276C(2) read with 276B where the facts differed. Interpretation and reasoning: The Court emphasises textual and contextual differences between the sub-sections of Section 276C and between Sections 276B and 276C. Section 276C(2) penalises willful non-payment of tax (payment-focused), not every instance of delay or failure; willfulness is an essential ingredient. By contrast, Section 276B (TDS crediting) is concerned with failure to credit and does not necessarily require willfulness. Where self-assessment tax was not paid with the return but was paid subsequently (on facts, return filed 05.11.2022 and tax paid 16.01.2023), the mere failure to pay by the due date does not, without more, constitute the statutory 'willful attempt to evade payment'. Allegations of financial difficulty were pleaded by the assessee; the complaint did not contain material to negativate that explanation or to demonstrate that the financial difficulty was a mere pretext for evasion. Ratio vs. Obiter: Ratio - Willfulness under Section 276C(2) is a necessary element and cannot be inferred solely from delayed payment where the complaint and annexures do not positively demonstrate intent to evade; mere priority of other payments or delay is insufficient at the threshold stage. Obiter - Comparative observations on Section 276B and the legislative caution in using 'willful' may be regarded as explanatory and persuasive rather than novel law. Conclusion: The averments and materials before the Court did not establish willful evasion as required by Section 276C(2); prosecution was not sustainable on the face of the complaint and annexures and therefore not fit to proceed. Issue 2 - Availability of Article 227 writ to quash the issuance of process where complaint lacks necessary averments of willfulness Legal framework: High Court possess supervisory jurisdiction under Article 227 to prevent abuse of process and to test whether the complaint and documentary material disclose a prima facie case warranting continuation of criminal proceedings. Precedent treatment: The Court applied settled principles that when considering a quashing petition the complaint and annexed documents are to be read as presented and assessed to determine whether continuation would amount to abuse of process. Interpretation and reasoning: Given the penal provision requires strict interpretation, and willfulness is a material ingredient, the Court must ensure the complaint discloses that ingredient on its face. The Court found the department's averments did not positively negate the assessee's pleaded financial difficulty nor show deliberate intent to evade payment; the tax was eventually paid some months later. The presumption of culpability (Section 278E) operates later and cannot be used to bootstrap the complaint at threshold without initial satisfaction of ingredients. Ratio vs. Obiter: Ratio - Article 227 may be invoked to quash proceedings where the complaint and documents do not, on their face, disclose essential ingredients (here, willfulness) of the offence charged; continuation would be abuse of process. Obiter - Remarks on timing of sanction and administrative steps are explanatory of the factual matrix rather than laying down new law. Conclusion: Writ jurisdiction properly invoked; issuance of process and complaint were quashed as continuation would be an abuse of process given absence of prima facie willful evasion. Issue 3 - Applicability of precedents concerning TDS/Section 276B and other authorities on 'willful evasion' to prosecutions under Section 276C(2) Legal framework: Different sections address different contingencies - 276B targets failure to credit deducted/collected tax, often actionable without proof of willfulness; 276C(2) targets willful non-payment of tax on self-assessment. Precedent treatment: Authorities concerning TDS/Section 276B and certain High Court/ Supreme Court decisions were relied upon by the Revenue; petitioner relied on a recent Single Judge decision addressing 276C(2) read with 276B where prosecution was quashed. Interpretation and reasoning: The Court distinguished authorities that arose under different statutory provisions or materially different facts (notably TDS/276B situations) and held them not directly applicable. Where precedent reasoning pertains to a different statutory matrix (e.g., failure to credit TDS), it cannot be mechanically applied to Section 276C(2) prosecutions concerning self-assessment tax. The Court accepted the petitioner's cited decision as relevant to the question of whether mere delay or failure to pay, absent evidence of willfulness, suffices for 276C(2) prosecution. Ratio vs. Obiter: Ratio - Precedents under different statutory provisions cannot be treated as binding when the statutory elements differ materially; authorities addressing TDS/276B do not automatically sustain prosecutions under 276C(2). Obiter - Observations comparing the legislative intent behind different sections are explanatory. Conclusion: The cited decisions on TDS/276B and other non-analogous cases do not support sustaining the present prosecution; the controlling requirement is proof of willful attempt to evade payment under 276C(2), which was not established on the face of the complaint. Overall Conclusion The Court concluded that the complaint and annexed material did not disclose the essential element of willful attempt to evade payment required under Section 276C(2); continuation of prosecution would be an abuse of process. The order issuing process and the complaint were quashed and dismissed under the Court's supervisory jurisdiction.