AI Drafter 
TaxTMI 
TaxTMI 
2025 (12) TMI 200
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....1'). 2. It is stated in the petition that a search under Section 132(1) of the Act of 1961 was carried out on 04.09.2013 at the petitioner's residential and business premises, leading to the seizure of documents/ diaries indicating entries of unaccounted advances of Rs. 1,47,00,000/-. The petitioner admitted this sum along with additional sum of Rs. 3,00,000/- as undisclosed income and accordingly, declared it in his return under Section 139(1) of the Act of 1961 for Assessment Year 2014-15. Considering the same, petitioner's income was assessed under Section 143(3) of the Act of 1961 at Rs. 1,74,44,610/- and a penalty of Rs. 15,00,000/- was imposed by the Assessing Officer under Section 271AAB of the Act of 1961, which was challenged by the petitioner by way of appeal filed before CIT(A)-4, Jaipur and the same was dismissed vide order dated 15.12.2017. Feeling aggrieved, the petitioner preferred an appeal before the Income Tax Appellate Tribunal (hereinafter to be referred as 'ITAT') and the ITAT vide its order dated 10.06.2019 set aside the penalty, by giving observations that the preconditions for its imposition were not satisfied, nor could the department establish any sort ....
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....llegation of willful attempt to evade tax, which was invoked solely because penalty under Section 271AAB of the Act of 1961 had been imposed. However, the ITAT, vide its order dated 10.06.2019, categorically deleted the said penalty on the ground that it was not sustainable in law. Once the penalty itself stands deleted, the entire framework of prosecution ceases to exist. When the penalty levied for concealment of income is set aside by the appellate authority or tribunal, the prosecution under Section 276C automatically loses its foundation as the basis of such prosecution no longer survives. Hence, continuing the criminal proceedings against the petitioner in such circumstances amounts to abuse of process of the Court and law. (iii) Petitioner has already discharged his tax liability by declaring the entire amount in his return under Section 139(1) of the Act of 1961, which was duly assessed under Section 143(3) of the Act of 1961. When tax on such income has been accepted and paid and penalty proceedings have been quashed, there remains no criminal intent or malice to constitute an offence under Section 276C(1) of the Act of 1961. Learned counsel for the petitioner fur....
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....ce on the judgment of the Hon'ble Supreme Court in the case of K.C. Builders & Another v. Assistant Commissioner of Income Tax, (2004) 2 SCC 731 wherein it has been held that when the penalty for concealment is deleted, prosecution under Section 276C of the Act of 1961 cannot survive. He further cited the judgment of the Hon'ble Supreme Court in the case of G.L. Didwania & Another v. Income Tax Officer & Another, 1995 Supp (2) SCC 724, wherein the Hon'ble Apex Court has held that when additions or concealment findings are set aside, prosecution which rests upon such concealment automatically fails. While referring to the judgment of Madras High Court in the case of Sayarmull Surana v Income Tax Officer, 2018 SCC OnLine Mad 3505, it was reiterated that prosecution cannot continue if the penalty is annulled. 6. Per contra, Shri Siddharth Bapna, learned counsel for Respondent No. 2-complainant submitted as under: (i) The prosecution under Section 276C(1)(i) of the Act of 1961 arises from the petitioner's admission of undisclosed income amounting to Rs. 1,50,00,000/- discovered during the search and seizure operation on 04.09.2013. It is emphasised that the admission was no....
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.... v K. Govindan, Income-tax Officer, (1992) 198 ITR 447 (Mad.) and English Electric Co. of India Ltd. v Commissioner of Income-tax, (1999) 235 ITR 35 (Madras). Further, learned counsel for Respondent No. 2 submitted that in the case of Sasi Enterprises v. Assistant Commissioner of Income-tax, (2014) 5 SCC 139, the Hon'ble Supreme Court has clarified that requirement of mens rea is although essential in prosecution, but not in penalty, yet the statutory presumption under Section 278E of the Act of 1961 applies unless rebutted beyond reasonable doubt. Therefore, as per learned counsel for Respondent No. 2-complainant deletion of penalty does not ipso facto extinguishes criminal liability. 7. I have heard rival contentions put forward by learned counsel for the parties and carefully perused the record. 8. In view of the aforementioned facts and submissions made by learned counsel for the parties, following issues arise for consideration in the present petition: (a) Whether the quashing of penalty proceedings under Section 271AAB of the Act of 1961 by the ITAT warrants the consequent quashing of the prosecution initiated under Section 276C(1) of the Act of 1961; ....
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.... in respect of the undisclosed income; (c) a sum computed at the rate of sixty per cent. of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) The Assessing Officer or the Commissioner (Appeals) may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, but before the 1st day of September, 2024 the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date- (A) pays the tax, together with interest, if any, in....
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....ified previous year which is found to be false and would not have been found to be so had the search not been conducted.] 276C. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under reports his income, under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,- (i) xxxxxx 278E. (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation.-In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact. (2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability." 10. A....
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....s to attract the penalty U/s 271AAB of the Act @ 10% 20% or 30% of the undisclosed income. In the absence of specifying the default and charge against the assessee for which the penalty was proposed to be levied the show cause notice issued by the AO and initiation of proceeding for levy of penalty U/s 271AAB are not valid. Hence, following the earlier order of this Tribunal we hold that the show cause issued by the AO in the case assessee is not sustainable and liable to the quashed." The show cause notices issued by the AO in the case of the assessee are also silent about the details of undisclosed income as well as specifying the clauses for levy of penalty whether it is 10%, 20% or 30% of the undisclosed income. Further, it is also pertinent to note that a part of the surrendered amount to the extent of Rs. 3,00,000/- is not based on any incriminating material or any illegality in the books of account, then the same cannot be held as undisclosed income for the purpose of section 271AAB of the Act. Though the issue of undisclosed income regarding the alance amount surrendered by the assessee based on the entries in the seized material is a debatable issue, however, the ....
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....part of the assessee and, therefore, the source of these transactions can be income of the assessee which can be held as undisclosed income but neither there is any material or any entry found during the course of search and seizure action to show any income of the assessee which is not recorded in the books. Further, these are only the entries of advances but no details of person or any detail of any land is recorded in the seized material. Such vague entries itself do not represent any asset, money, bullion or even the income of any manner/nature but these are simple out go of money. Even the corresponding asset is not reflected in these entries recorded in the seized material. Therefore, until and unless a right is created and vested with the assessee to have an asset equivalent to amount or other right to recover the said amount from the persons to whom the amounts were paid, these entries cannot be held as income of the assessee much less the undisclosed income of the assessee. On careful perusal of the entries, we note that very vague description is there, only amount is mentioned against land but there is no detail of any person or particular details of the land is given in ....
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....ome-tax (Investigation), 2025 SCC OnLine SC 1843, clarify that prosecution for an offence under Section 276C(1) of the Act of 1961 mandates proof of a willful attempt to evade tax or penalty. The Hon'ble Supreme Court has categorically explained that Section 276C(1) of the Act of 1961 pertains to a willful attempt to evade tax, penalty, or interest that is "chargeable", "imposable", or related to "under-reporting of income". It is primarily intended to deter and penalise willful and deliberate attempts by an assessee for evasion of taxes, penalties and interest prior to their imposition or charging. The provision applies where there is a conscious and intentional effort to evade tax liability, distinguishing such conduct from bona fide errors or differences in interpretation. The gist of the offence under sub-section (1) of Section 276C of the Act of 1961 lies in the willful attempt to evade the very imposition of liability and what is made punishable under this sub-section is not the "actual evasion" but the "willful attempt" to evade as described in the proviso to Section 276C of the Act of 1961. 13. It is also settled law that if penalty proceedings fail or are quashed due to....
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....re, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities. 26. In our view, once the finding of concealment and subsequent levy of penalties under Section 271(1)(c) of the Act has been struck down by the Tribunal, the assessing officer has no other alternative except to correct his order under Section 154 of the Act as per the directions of the Tribunal. As already noticed, the subject-matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the assessing officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eye of the law and, therefore, the prosecution cannot be proceeded with by the complain....
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....s held in Uttam Chand case (1982) 2 SCC 543, the prosecution cannot be sustained. Accordingly, the proceedings are quashed and the appeal is allowed." 18. In the case of Radheshyam Kejriwal v State of West Bengal & Another, (2011) 3 SCC 581, the Hon'ble Apex Court emphasised that criminal proceedings are precluded by adjudicatory exoneration on identical facts, particularly when such proceedings require the higher evidentiary threshold for conviction. In the aforesaid case, it was held as under: "26. We may observe that the standard of proof in a criminal case is much higher than that of the adjudication proceedings. The Enforcement Directorate has not been able to prove its case in the adjudication proceedings and the appellant has been exonerated on the same allegation. The appellant is facing trial in the criminal case. Therefore, in our opinion, the determination of facts in the adjudication proceedings cannot be said to be irrelevant in the criminal case. In B.N. Kashyap AIR 1945 Lah 23 the Full Bench had not considered the effect of a finding of fact in a civil case over the criminal cases and that will be evident from the following passage of the said judgment: (....
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....principles aforesaid we proceed to consider the case of the appellant. In the adjudication proceedings on merit the adjudicating authority has categorically held that "the charges against Shri Radheshyam Kejriwal for contravening the provisions of Section 9(1)(f)(i) and Section 8(2) read with Section 64(2) of the Foreign Exchange Regulation Act, 1973 cannot be sustained". In the face of the aforesaid finding by the Enforcement Directorate in the adjudication proceedings that there is no contravention of any of the provisions of the Act, it would be unjust and an abuse of the process of the court to permit the Enforcement Directorate to continue with the criminal prosecution." 19. In the case of Sayarmull Surana (supra), Madras High Court has held as under: "11. It may be necessary to state here that the authorities created under the Income Tax Act are fact-finding bodies and the accused has been knocking the doors of these bodies challenging the determination of the income by the Income Tax Officer. There was no supine indifference on the part of the accused in not paying the demanded tax, but, on the contrary, he had agitated before various fora and at the end of the d....
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....lty and prosecution, but did not dilute the principle that prosecution cannot outlast a final judicial negation of factual foundation. 23. Consistent principle emanate from the above judgments is that the criminal proceedings founded on concealment must fail, if the Tribunal(ITAT) has set aside the penalty on merits. The crux of the petitioner's case is the categorical exoneration by the Income Tax Appellate Tribunal (ITAT), which has decided the question of undisclosed income and concealment, after analysing the facts and examining statutory requirements as also the actual conduct of the petitioner and held that there was no concealment or satisfaction of conditions for penalty. The ITAT's factual findings are vital because both penalty and prosecution share the same factual foundation, i.e., the existence of undisclosed income and factual concealment. The legal principle here is that where a statutory fact-finding authority empowered to decide the merits of the case conclusively finds no concealment or breach, any subsequent criminal prosecution on identical facts lacks foundation. Thus, it can be held that if the Tribunal(ITAT) sets aside a penalty under Section 271AAB of the....
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.... that the prosecution against the petitioner under Section 276C(1)(i) of the Act of 1961 is premised wholly on allegations of concealment. Since the Tribunal has adjudicated, based on merits, that there was neither concealment, nor satisfaction of requirements for penalty, there remains no factual or legal basis for the prosecution to survive. 28. As regards question (b), it would be significant to observe that while considering the maintainability of a petition under Section 482 Cr.P.C. despite pendency of the statutory appeal by the Department, it has to be kept in mind that mere filing of the Department's appeal does not wash off the findings arrived at by the Tribunal (ITAT) and ordinarily, the pendency of appeal does not oust the jurisdiction of this Court, where continuation of prosecution would cause abuse of process or is contrary to the statutory mandate, the intrinsic jurisdiction under Section 482 can be invoked irrespective of pending appeals. 29. Mere pendency of the Department's appeal under Section 260A of the Act of 1961, without a stay on the ITAT's order, does not resurrect the factual findings set aside by the ITAT. Thus, pendency of appeal against order of....
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....used is sound, reasonable, and indubitable, i.e., the materials is of sterling and impeccable quality? (ii) Step two, whether the material relied upon by the accused, would rule out the assertions contained in the charges levelled against the accused, i.e., the material is sufficient to reject and overrule the factual assertions contained in the complaint, i.e., the material is such, as would persuade a reasonable person to dismiss and condemn the factual basis of the accusations as false (iii) Step three, whether the material relied upon by the accused, has not been refuted by the prosecution/complainant; and/or the material is such, that it cannot be justifiably refuted by the prosecution/complainant? (iv) Step four, whether proceeding with the trial would result in an abuse of process of the court, and would not serve the ends of justice? If the answer to all the steps is in the affirmative, judicial conscience of the High Court should persuade it to quash such criminal-proceedings, in exercise of power vested in it under Section 482 of the Cr.P.C. Such exercise of power, besides doing justice to the accused, would save precious court time, wh....