Initiating Criminal Proceedings by suppressing the fact that Assessee paid Tax is Abuse of Power: Madras HC slams Income Tax Dept [Read Order]

The Madras High Court, while quashing criminal proceedings against the assessee, has held that the income tax department is misusing its power by initiating the proceedings after suppressing the fact that the tax amount is already remitted with the department.

A criminal complaint was filed against the petitioner for prosecution filed by the Income Tax Department alleging that, the petitioners have willfully attempted to evade payment of Income Tax for the Assessment Year 2017-2018 and thereby, committed offence under Section 276 C (2) of the Income Tax Act, 1961.

A revision petition was filed by the assessee before the High Court under section 482 of the CrPC contending that that, the tax payable by the petitioners for the Assessment Year 2017-18 was paid well before the issuance of show cause notice and the same was intimated to the authorities, without applying the mind and not considering the payment of tax with interest, sanction to prosecute granted and the private complaint came to be filed suppressing the factum of payment of tax much prior to sanction to prosecute.

Relying on a catena of judgments, Justice G Jayachandran observed that“admittedly there is no concealment of any source of income or taxable item, the inclusion of a circumstance aimed to evade tax or furnishing of inaccurate particulars regarding any assessment or payment of tax. What is involved is only a failure on the part of the petitioner to pay the tax in time, which was later on paid after 4 ½ months along with interest payable. So, it would not fall under the mischief of Section 276 C of the Income Tax Act, which requires an attempt to evade tax and such attempt must be wilful.”

“If the intention (culpable mental state) of the assessee was to evade tax or attempt to evade tax, they would not have filed the returns in time disclosing the income and the tax liability to be paid. They would not have remitted the tax payable along with interest without waiting for the authorities to make a demand or notice for prosecution. Thus, except for a delay of 4 ½ months in payment of tax, it is clear that there was no tax evasion or attempt to evade the payment of tax. To invoke the deeming provision, there should be a default in the payment of tax in the true sense. Nothing can be deemed contrary to the fact borne by the record. If such deeming fiction is applied by the authority, it has to be termed as non-application of mind over the material records,” the Court said.

It was further observed that when the tax is paid much before the process for prosecution is set into motion. “The presumption can be applied only when the basic ingredient which would constitute any offence under the Act is disclosed. Then only, the rule of evidence under section 278 E of the Act regarding rebuttable presumption as to the existence of culpable mental state on the part of accused would come into play,” the Court said.

“When the facts on record disclose that the tax already paid and no evasion of tax, no man of ordinary prudence can presume that there is an attempt to evade tax and such attempt is a wilful one,” the Court added.

Noting that the Principal Commissioner has conspicuously omitted to record the fact of payment of the tax with interest except to record that, the tax was not paid within the time, the Court observed that “thus, the suppression of material facts, intentional suggestion of falsehood and non-application of mind goes to show that, this is a malicious prosecution initiated by the Income Tax authorities by abusing the power. When the malafide is patently manifested, the petitioners need not be forced to undergo the ordeal of a trial, which has no legs to stand.”

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