Continuation of Prosecution u/s 276C(1) Not Valid When Penalty Proceedings on Same Facts Have Been Quashed: Madras HC [Read Order]
The Madras High Court held that prosecution under Section 276C(1) of the Income Tax Act cannot continue when penalty proceedings on the same facts have been quashed.
Madras - HC - Taxscan
Madras - HC - Taxscan
In a recent ruling, the Madras High Court held that prosecution under Section 276C(1) of the Income Tax Act cannot continue when the penalty proceedings on the same facts have already been quashed.
Pradeep Dayanand Kothari, the petitioner, filed criminal original petitions seeking to quash the complaints pending against him in EOCC Nos. 112 and 113 of 2015 before the Additional Chief Metropolitan Magistrate (Economic Offences Court), Egmore, Chennai.
The Income Tax Department had filed complaints under Sections 276C(1) and 277 of the Income Tax Act, alleging that the petitioner had concealed foreign income for the assessment years 2006-07 and 2007-08. The department stated that the petitioner had an undeclared account with HSBC Private Bank in Switzerland through two trusts and had not reported the related transactions in his tax returns.
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The petitioner’s counsel argued that the account was originally created by his father, who died in 1992. The petitioner became aware of the account only after receiving summons in 2011. The funds were transferred to him during the financial year 2011-12, and he paid taxes on that amount in the assessment year 2012-13.
The counsel also pointed out that the penalty proceedings for the same years had already been dropped by the Income Tax Appellate Tribunal.
The department’s counsel argued that the petitioner had carried out transactions through an undisclosed foreign account during the relevant assessment years and had failed to include this in his returns. They submitted that the prosecution could proceed independently of the penalty proceedings.
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The bench comprising Justice G.K. Ilanthiraiyan observed that both the penalty and prosecution proceedings were initiated from the same show cause notice and based on the same set of facts.
The court referred to the Supreme Court’s ruling in Radheshyam Kejriwal v. State of West Bengal, which explained that if the penalty is dropped on merits, the prosecution on the same facts should not continue. The court explained that once the penalty had been set aside by the Tribunal, continuing the criminal case would amount to misuse of the legal process.
The court held that the prosecution under Section 276C(1) could not be sustained after the penalty proceedings were quashed. The court quashed the complaints in EOCC Nos. 112 and 113 of 2015. The petitions were accordingly allowed.
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