Gujarat HC quashes prosecution under Income tax Act on Undisclosed Income in absence of a willful attempt to Evade Tax, Penalty or Interest [Read Order]

The High Court (HC) of Gujarat quashed prosecution under the Income Tax Act, 1961 on undisclosed income in absence of a willful attempt to evade tax, penalty, or interest.

Suman Paper &Boards Ltd. & 6 other(s), the applicant No.1 – a Public Limited Company and its Directors (other applicants) were raided on 1.12.1995 and a search was carried out by the respondent Income Tax Department under Section 132 of the Income Tax Act and the search was concluded on 5.1.1996. 

Under a Notice under Section 158BC of the Income Tax Act, the applicant had filed a return for the Block Period 1.4.1985 to 5.1.1996, declaring undisclosed income of Rs.20,31,055/- on 26.2.1996.  The Assessing Officer vide an order dated 31.1.1997, determined the undisclosed income atRs.62,61,623/-.  

The applicant filed an Appeal before the Income Tax Appellate Tribunal (‘ITAT’) and the Tribunal granted certain reliefs and whereas few additions have been set aside for re-adjudication.  It appears that under the re-adjudication, the undisclosed income was computed as Rs.23,36,144/-. 

The respondent Department argued that the attention of the Coordinate Bench had not been drawn to Section 278E and, therefore, the law is not binding. A particular section or provision was not brought to the notice of the Court, though the same was not reflected in the order, normally it is deemed and presumed that the Court had considered it. 

TheCoordinate Bench had inter alia held that upon introduction of Section 158BFA and Section 158BC(a)(ii) and Section 276CCC from 1.1.1997, the legislature had envisaged prosecution for willful failure to furnish return of income in search cases, whereas, in absence of a specific provision between the period from 1.7.1995 to 1.1.1997, it could be inferred that the legislature had intended to grant immunity in such type of cases.

Section 278E of the IT Act 1961, Advocate for the respondent Income Tax Department intends to submit that the said Section envisages the existence of the culpable mental state in a prosecution for any offence and whereas, the defence has been imposed with a burden of rebutting such prosecution. 

In the considered opinion of this Court, the Criminal Complaint has been filed by the Department inter alia alleging the commission of offences punishable under Section 276C, Section 277 read with Section 278B of the Act.  A bare perusal of Section 276(1) would reveal that punishment is to be imposed for a willful attempt to evade tax, penalty or interest and whereasthe heads of income under which there has been any alleged willful attempt as per the Scheme of the Section does not hold any special relevance.

A Single member comprising Justice Nikhil S Kariel observed that the fact of headson which income had not been disclosed was different and since there is not be of any material consequence.Consequently, the Court quashed and set aside the impugned Criminal Complaints. The applications are allowed accordingly. 

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