Income Tax Act, 1961 – ss.276C(1), 245H(1) proviso to, 245D(4), 245I – Search conducted at the residence of the appellant, unaccounted cash of Rs.4,93,84,300/- was seized – Proceedings for the offence u/s.276C(1) for assessment year 2017-2018 initiated by Revenue – Appellant filed quashing petition before the High Court seeking quashing of the complaint and pending proceedings – Later, appellant also filed an application u/s.245C before the Settlement Commissioner – Application partly allowed vide order dated 26.11.2019; settlement was entered by the Revenue with the appellant, granting him immunity from levy of penalty – However, High Court dismissed the quashing petition – Interference with: Held: 1.1 The departmental circular dated 24.04.2008, Prosecution Manual, 2009, and CBDT’s circular dated 09.09.2019, provide when the prosecution ought to be lodged by Revenue – The said Circulars were issued to regulate the lodging of prosecution in genuine cases and to weed out the problems of the tax payers, and also to understand when can the prosecution for s.276 ought to be lodged and continued. [Para 24]
1.2 If an assessee has made suppression of income without disclosing the manner in which the excess amount was earned and concealed the account making wilful attempt to evade the tax which may be imposable and chargeable or payable, he/she is required to be prosecuted – Therefore, the recourse to lodge prosecution was made permissible subject to the department’s circular dated 24.04.2008 which provided for confirmation by ITAT in case the penalty imposed u/s.276C(1) is exceeding Rs.50,000/-. [Para 32]
1.3 The said circular was in vogue on the date of the grant of sanction by Principal Director Income Tax (Investigation), Chennai (PDIT) to respondent-Deputy Director of Income Tax (Investigation), Chennai (DDIT) for lodging the prosecution against the appellant – The said circular was reaffirmed by the Prosecution Manual, 2009 and the clarification issued by the CBDT in 2019 – As such, the circulars were binding on the authorities and required to be adhered to while lodging the prosecution by the Revenue. [Para 32]
1.4 Thus, the prosecution lodged with the help of proviso to sub-section (1) to s.245H was in defiance to the circular dated 24.04.2008 which was in vogue – Admittedly, the complaint was filed by DDIT after sanction of PDIT before the ACMM on 11.08.2018 – Application u/s.245(C) was filed by the appellant before the Settlement Commission later – In the settlement proceedings, assessee disclosed all the facts material to the computation of his additional income and fully satisfied the provisions of s.245H – The Commission found that overall additional income is not on account of any suppression of any material facts and it does not disclose any variance from the manner in which the said income had been earned – As such the immunity from penalty under IT Act was granted in exercise of powers u/s.245H. [Paras 33, 36]
1.5 On the date of lodging the prosecution, the finding of concealment of income or imposition of the penalty of more than Rs.50,000/was not recorded by the ITAT – Nothing on record to show that any wilful attempt to evade the payment of tax by assessee was made – No explanation put forth by Revenue to demonstrate as to why PDIT or DDIT did not comply the procedure while lodging prosecution in this case – Therefore, the act of the authority in continuing prosecution is in blatant disregard to their own binding circular dated 24.04.2008 and in defiance to the guidelines of the Department – It was the duty of the PDIT and DDIT to look into the facts that in absence of any findings of imposition of penalty due to concealment of fact, the said prosecution cannot be proved against the assessee. [Paras 33, 36]
1.6 Even after passing the order by the Settlement Commission on 26.11.2019, it was brought to the notice of the High Court, but the authorities were persistent to pursue the prosecution without looking into the procedural lapses on their part – Revenue acted in blatant disregard to binding statutory instructions – Such willful noncompliance of their own directives is a serious lapse and undermines the principles of fairness, consistency and accountability, which is unjustified and unlawful – Impugned order set aside – Prosecution lodged by the Revenue against the appellant, quashed – Costs of Rs.2,00,000/- imposed on the Revenue, to be paid to the appellant. [Paras 36, 38]
Income Tax Act, 1961 – s.276C – Wilful attempt to evade tax, etc. – s.276C(1) vis-à-vis s.276C(2) – Operation and applicability – Distinction between – s.279(1) – Chapter XIXA- ‘Settlement of Cases’ – Wanchoo Committee’s Report of December, 1971 – Settlement mechanism set up, intent and purpose of – Departmental circular dated 24.04.2008; Prosecution Manual, 2009; and CBDT’s clarification in 2019 qua the criteria to be followed for launching prosecution in respect of certain categories of offence under the IT Act, including s.276C(1) – Circulars are binding on the authorities administering the provisions of the IT Act – Taxation Laws (Amendment) Act, 1975 (41 of 1975) – Circulars/Notices. [Paras 12, 14-18, 20-24, 31]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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