An annulled penalty under the Income Tax Act negates the foundation for criminal prosecution for concealment unless reversed, thus quashing ongoing prosecution.

JUDGMENT :

ANAND SHARMA, J.

1. The present petition has been filed under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter to be referred as 'Cr.P.C.'), seeking quashing of criminal proceedings arising from Criminal Case No. 140/2017 pending before the Court of the Chief Metropolitan Magistrate (Economic Offences), Jaipur City, Jaipur (hereinafter to be referred as 'the trial court') for alleged offence under Section 276C(1)(i) of the Income Tax Act, 1961 (hereinafter to be referred as 'the Act of 1961').

2. It is stated in the petition that a search under Section 132 (1) of the Act of 1961 was carried out on 04.09.2013 at the petitioner’s residential and business premises, leading to the seizure of documents/ diaries indicating entries of unaccounted advances of Rs. 1,47,00,000/-. The petitioner admitted this sum along with additional sum of Rs. 3,00,000/- as undisclosed income and accordingly, declared it in his return under Section 139 (1) of the Act of 1961 for Assessment Year 2014-15. Considering the same, petitioner's income was assessed under Section 143 (3) of the Act of 1961 at Rs. 1,74,44,610/- and a penalty of Rs. 15,00,000/- was imposed by the Assessing Officer under Section 271AAB of the Act of 1961, which was challenged by the petitioner by way of appeal filed before CIT(A)-4, Jaipur and the same was dismissed vide order dated 15.12.2017. Feeling aggrieved, the petitioner preferred an appeal before the Income Tax Appellate Tribunal (hereinafter to be referred as 'ITAT') and the ITAT vide its order dated 10.06.2019 set aside the penalty, by giving observations that the preconditions for its imposition were not satisfied, nor could the department establish any sort of concealment.

3. During the pendency of these proceedings, the Department initiated prosecution by way of filing complaint on 31.03.2017 under Section 276C(1)(i) of the Act of 1961 alleging willful attempt to evade tax by the petitioner. It is contended that although the Department has preferred an appeal under Section 260A against the order passed by the ITAT, yet there is no interim stay against the order of the ITAT and thus, the penalty remains annulled without any operative finding of concealment or willful evasion as of today against the petitioner. Overlooking such crucial effect of annulment of the penalty, cognizance was taken on aforesaid complaint by the trial court vide order dated 06.04.2017, which has materially affected the rights of the petitioner and occasioned failure of justice.

4. By way of filing reply, Respondent No. 2-complainant (Income Tax Department) opposed the petition and submitted that its appeal against the order of the ITAT under Section 260A has already been admitted by this Court on substantial questions of law, which consequently preserves the Department’s right to prosecute. It is contended in reply to the petition that penalty proceedings and criminal prosecution are independent and, therefore, the deletion of penalty does not bar prosecution. Respondent No. 2 referred the statutory presumption of culpable mental state under Section 278E of the Act of 1961 and submitted that deletion of penalty does not automatically negate criminal culpability.

5. Shri Pradeep Kumar Chaudhary, learned counsel for the petitioner, while pressing his challenge to the criminal proceedings, submitted as under :-

(i) The genesis of the prosecution was based entirely upon the alleged concealment of income arising from search proceedings under Section 132 (1) of the Act of 1961 and the consequent addition of Rs. 1,50,00,000/– as alleged undisclosed income