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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
GITA GOPI, J.
Ganga Devi Somani – Appellant
Versus
State Of Gujarat – Respondent
R/Criminal Misc Application No. 22512 of 2019
Decided on : 06-07-2021
Code of Criminal Procedure ,1973 - Section 482 - Income Tax Act - Section 276CC ,139, 148 and 142 - Saving of inherent power of high court - Whether non-filing of Return under Section 139(1) of Act, - As well as non-compliance of time prescribed under Section 142 and 148 of Act are grounds for invocation of provisions of Section 276CC of Act - Whether assessee has or has not committed willful default in filing the returns. - Whether attempt to evade payment of taxes, would be attributable to petitioners, would be a question of facts which would be decided only during trial and further what would be the effect of subsequent payment, is for parties to prove –
Finding of the Court:
considered opinion of Court, prosecution initiated against petitioners is illegal and tantamount to abuse of process of law and required to be quashed - Case it appears that Company had voluntarily declared its intention to pay tax and 80% of tax was paid prior to complaint - Income Tax Department was instructed regarding dues from GST Department and there is no denial to fact that Income Tax Department had issued Notice to GST Department for remitting refund directly to their Department - Certain tough circumstances were also pleaded by Company regarding demonetisation and implementation of GST, Textile Industry facing huge financial crisis, which had affected recovery of tax liability determined by accused Company of Rs was not controverted by Income Tax Department and to that payable tax, as per self-assessed Return of income, the Company had already paid Rs and further amount of was to be directly paid by GST Department and as such amount of Rs was to be adjusted against GST refund which constitute 80% of total tax liability - Accused Company has stated reasons for delay and expressed readiness to pay balance of Rs. Delayed payment under provisions of Act may call for penalty or interest but by no stretch of imagination in circumstances as pleaded by petitioners, could be construed as an attempt to evade tax so as to entail prosecution of petitioner for alleged offence of Section 276C(2) of Act -
Result: Petition is Allowed.
Certainly. Based on the provided legal document, the key points are as follows:
The primary object of initiating criminal proceedings for willful default under the Income Tax Act is to prevent tax evasion [judgement_subject].
The prosecution for non-filing or delayed filing of income tax returns, as well as non-compliance with statutory requirements under Sections 139, 142, and 148 of the Income Tax Act, is only justified if there is evidence of wilful default and intent to evade taxes (!) (!) .
The case emphasizes that the object of launching criminal prosecution is to deter tax evasion, and such proceedings should not be initiated unless there is clear evidence of a guilty mind (mens rea) and wilful attempt to evade payment of taxes (!) .
The Court highlights that the burden of proving wilfulness or intent to evade lies with the prosecution, and it must establish beyond reasonable doubt that the accused had a guilty mind and deliberately tried to evade taxes (!) (!) .
The legal provisions specify that a failure to file returns in due time, or non-payment of taxes, does not automatically lead to criminal prosecution unless it is demonstrated that such failure was wilful and with intent to evade (!) (!) .
The circumstances of the case show that the accused company had declared its intention to pay taxes, paid a significant portion of the tax liability prior to the complaint, and had explained delays due to external factors such as demonetization and GST implementation (!) (!) .
The evidence indicates that the company had taken steps to comply with tax obligations, including paying 80% of the tax liability before the initiation of proceedings, and made arrangements to pay the remaining amount (!) (!) .
The Court observed that the prosecution was initiated without conclusive evidence of wilful intent to evade, and the delays were attributable to external circumstances and not necessarily to a guilty mental state (!) .
The Court concluded that the criminal proceedings against the petitioners were illegal and amounted to abuse of process, leading to the quashing of the complaint and the proceedings initiated thereunder (!) .
The overall legal stance underscores that criminal prosecution under the Income Tax Act for default or evasion requires proof of wilfulness and intent, and mere delay or partial payment, especially when justified, does not suffice to establish criminal liability (!) (!) .
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JUDGMENT :
1. Rule. Ms. Monali Bhatt, learned Additional Public Prosecutor and Mr. Manish Bhatt, learned Senior Counsel with Ms. Mauna Bhatt, learned advocate, waive service of notice of rule on behalf of respondents Nos.1 & 2 respectively.
2. This petition has been filed under section 482 of the Code of Criminal Procedure for quashing the complaint made by the Office of the Assistant Commissioner of Income Tax, Surat which has culminated into Criminal Case No. 23693 of 2019 pending before the Court of learned Chief Judicial Magistrate, Surat against the petitioners for the offence punishable under Section 276C(2) read with Section 278E of Income Tax Act, as well as the order issuing summons dated 13.6.2019.
3. It is contended by the petitioners that they are independent and non-executive Directors of the Company named Sumeet Industries Limited. They had joined the Company on 28.6.2014, 13.2.2017 and 11.4.2017 respectively. It is submitted by the petitioners that they have no role to play in the day to day affairs of the Company and they have tendered their resignation on 30.11.2018, 19.11.2018 and 3.11.2018 respectively, the said resignation is also reflected in Form DIR-12 maintained with the Ministry of Corporate Affairs.
3.1 The petitioners state that since they have resigned from the Company, are not aware about the functioning of the Company but from the information gathered from the sources and averment made in the complaint, it is stated by the Petitioners that the Company-accused No.1 was having the Tax liability of Rs. 13,90,27,650/- out of which prior to the filing of the complaint, Rs. 11,12,00,439/- was already paid. The accused- Company has responded to the show-cause Notice dated 25.1.2019, the Company had informed Respondent No.2 of having already paid Rs.7,28,45,394/- and further Rs. 3,83,55,045/- was due from the GST Department as refund on export for which the Respondent No.2 had already issued a notice to the GST Department for remitting the said refund directly in the account of the Income Tax Department. On the same line, with similar request, the accused Company had written a letter to the GST Department making similar request to GST Department for transferring the said refund directly into the Account of the Income Tax Department. Thus, it is stated by the petitioners that already total amount of Rs. 11,12,00,439/- was secured with the respondent No.2 prior to filing of the impugned complaint.
3.2 It is urged by the Petitioners that the accused Company has after the complaint paid the remaining tax amount. Certain amount was directly deposited by the Company and the remaining amount was deposited by the GST Department which clearly shows that the delay, if any, was attributable to the GST Department and not to the accused Company.
3.3 The petitioners state that they have resigned way back in the month of November, 2018 and the Certificate of the Chartered Accountant dated 19.11.2019 along with necessary documents shows that the entire tax liability had been paid by the accused Company. Therefore, the petitioners are constrained to approach this Court by way petition under Section 482 of Cr.P.C. for quashing of the impugned proceedings, pending before the Court of learned Chief Judicial Magistrate, Surat.
4. Mr. Navin Pahwa, learned Senior Counsel along with Mr. Nandish Thacker, learned advocate for the petitioners submitted that the petitioners are appointed as independent Directors. Returns of the incomes for the Assessment Year 2016-17 and 2017-18 have been filed on the basis of self-assessment. The show-cause notice given by the department was replied on 27.3.2019, given details of the taxes are paid and for the balance due from the GST Department as GST refund on export, the Income Tax Department had issued Notice to GST for remitting refund. Mr. Pahwa, placing reliance on the certificate by the Chartered Accountant stated that for the Assessment Year 2017-18, the Company M/s. Sumeet Industries Limited had
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