Stay On Criminal Trial For Willful Evasion Of Tax U/s 276(c) Of The Income Tax Act, 1961 Till The Disposal Of The Appeal Filed Before Authorities  

In the case tilted as Beaver Estates Pvt. Ltd. and Ors. Vs. The Assistant Commissioner of Income Tax Corporate, Circle 1(1) and Ors., OP (Crl.) No. 400 of 2019, MANU/KE/4435/2019, the High Court of Kerala has directed the Trial Court to keep the criminal proceedings initiated against the Petitioner Company and its Managing Director on the complaint filed against them by the Assistant Commissioner of Income Tax alleging that they had made wilful attempt to evade tax and committed an offence punishable under Section 276C(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), in abeyance, till the disposal of Income Tax Appeal filed by the Petitioners for challenging the assessment of tax before the Commissioner of Income Tax.

That in the instant case, the Petitioners filed a petition before the Hon'ble High Court for staying the criminal trial initiated against them for wilful attempt to evade tax on the ground that if the statutory appeal filed by the petitioners under the Act gets allowed, it would knock down the very basis of the prosecution.

The Petitioners in support of their stand relied on the judgment of the Hon'ble Supreme Court in the case of K.C. Builders v. Assistant Commissioner of Income Tax, MANU/SC/0070/2004: (2004) 2 SCC 731, wherein it had been held that levy of penalties and prosecution under Section 276C of the Act are simultaneous and hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276C of the Act is automatic.

The Petitioners also relied on the judgment of the Hon'ble Supreme Court in the case of Income Tax v. Bhupen Champak Lal Dalal, MANU/SC/0141/2001: AIR 2001 SC 1096, wherein the Hon'ble Court had held as under:

"The prosecution in criminal law and proceedings arising under the Act are undoubtedly independent proceedings and, therefore, there is no impediment in law for the criminal proceedings to proceed even during the pendency of the proceedings under the Act. However, a wholesome rule will have to be adopted in matters of this nature where courts have taken the view that when the conclusions arrived at by the appellate authorities have a relevance and bearing upon the conclusions to be reached in the case necessarily one authority will have to await the outcome of the other authority".

On the other hand, to counter the stand of the Petitioners, the Respondent relied on the judgment of the Hon'ble Supreme Court in the case of Sasi Enterprises v. Assistant Commissioner of Income Tax, MANU/SC/0072/2014: (2014) 5 SCC 139, wherein the Hon'ble Court had held as under:

"We also find no basis in the contention of the learned senior counsel for the appellant that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings under Section 276CC of the Act. Section 276CC contemplates that an offence is committed on the non-filing of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach...... If it was the intention of the legislature to hold up the prosecution proceedings till the assessment proceedings are completed by way of appeal or otherwise the same would have been provided in Section 276CC itself. Therefore, the contention of the learned senior counsel for the appellant that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the appellant had not filed the return as per Section 139(1) of the Act or following the notices issued under Section 142 or Section 148 does not arise".

In the instant case, the Hon'ble Judge of the Kerala High Court differentiated the case in hand with the judgment of Sasi Enterprises v. Assistant Commissioner of Income Tax, relied upon by the Respondent, on the ground that the said judgment was passed in the context of Section 276 CC of the Act and not in the context of Section 276 C of the Act.

The Hon'ble Court found merit in the contention of the Petitioners and therefore, allowed the petition filed by them and directed the Trial Court to keep the criminal trial in abeyance till the disposal of the appeal filed before Commissioner of Income Tax.

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