Bombay High Court: The Division Bench of K.R. Shriram and Amit B. Borkar, JJ., discussed when a person can be prosecuted under Section 276C(1) of the Income Tax Act.
Petitioner challenged the order passed by respondent 3 sanctioning the prosecution against the petitioner under Section 276C (1) of the Income Tax Act, 1961 and a complaint was filed against the petitioner in the Court of Additional Chief Metropolitan Magistrate, Mumbai.
Petitioner was engaged in the business of trading in ferrous and non-ferrous metals. He filed his return of income on 20-03-2010 for Assessment Year 2009-10.
By notice dated 28-03-2014, the assessment of Petitioner was re-opened under Section 148 of the said Act. The Assessing Officer on 4-03-2015 passed an order of assessment, making addition of Rs 34,25,377/- being 12.5% of alleged bogus purchases of Rs 2,74,03,016/-. The Assessing Officer also issued show cause notice under Section 271(1)(c) of the said Act.
On being aggrieved with the assesment order, an appeal with the Commissioner of Income Tax was filed.
The assessing officer after hearing the petitioner made the addition of Rs 12,91,069 being 12.5% of alleged bonus purchases of Rs 1,03,28,552 by order dated 30-11-2016. CIT(A) y its order dated 19-12-2016 confirmed the order of Assessing Officer passed on 4-3-2015.
Again, on being aggrieved, petitioner filed an appeal before the Income Tax Appellate Tribunal (ITAT) which was dismissed on 3-7-2017.
In November 2017, respondent 3 issued a show-cause notice to the petitioner as to why prosecution under Sections 276C(1) and 277 of the said Act should not be initiated against the petitioner.
Present petition was filed by the petitioner challenging the order of sanction of prosecution dated 25-1-2018.
Law | Section 276C (1) of the Income Tax Act
“Section 276C (1) :-
If a person willfully 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) in a case where the amount sought to be evaded [or tax on under reported income] exceeds [twenty-five] hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to [two] years and with fine.”
Analysis and Decision
High Court firstly noted that the following ingredients must be fulfilled to attract the offence under Section 276(C):
- a) Willful attempt to evade any tax.
- b) Willful attempt to evade any penalty; or
- c) Willful attempt to evade any interest chargeable or imposable under this Act; or
- d) under reports his income.
Even if one of the above three ingredients are fulfilled, then prosecution can be initiated under Section 276(C).
In the sanction order, it was stated that the petitioner failed to substantiate the claim of purchases amounting to Rs 2,74,03,016 and the assessing office held the purchases to be bogus and made an addition of Rs 34,25,377 (12.5% of the bogus purchases).
“…before granting sanction the authority must have before it the necessary report and the material facts which prima facie establish the commission of offence alleged for and that the sanctioning authority would apply its mind to those facts. The order of sanction is only an administrative act and not a quasi-judicial one nor is a lis involved.”
Bench stated that in the present matter the sanctioning authority seemed to have applied its mind to the facts placed before it and considered them and then granted sanction.
Court noted the note of caution on the powers of quashing a criminal proceeding as was given in the Supreme court decision of State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335.
Further, the Court also relied on the decision in Rajiv Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330, wherein the scope of power under Section 482 of the Code of Criminal Procedure was succinctly laid down.
In Court’s opinion, the petitioner willfully and intentionally evaded his tax liability.
The Court was satisfied that prima facie the ingredients of the offences under Section 276C(1) of the Income Tax Act were satisfied and at this stage, Court cannot go into the truth or otherwise of the allegations made against the petitioner.
In view of the above petition was dismissed. [Nayan Jayantilal Balu v. Union of India, 2021 SCC OnLine Bom 5913, decided on 7-12-2021]
Advocates before the Court:
Mr Dharan V. Gandhi, for the Petitioner.
Mr Akhileshwar Sharma, for the Respondents.