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Flamingo Breweries Tax Prosecution Quashed After ITAT Sets Aside Assessment :
Prosecution Crumbles After Foundation Removed: Quashes Tax Cases Against Flamingo Breweries
The on quashed three criminal complaints filed under against M/s Flamingo Breweries Private Limited and its two directors, Sanju Phangcho and Bijoy Phangcho. Justice Robin Phukan held that once the sets aside the assessment order , the prosecution founded on that order cannot survive. The court also struck down separate complaints against the directors, finding them an when the company itself was not arraigned as an accused.
A Liquor Wholesaler's Tax Dispute Turns Criminal
Flamingo Breweries operates an Indian Made Foreign Liquor (IMFL) bonded wholesale warehouse in Karbi Anglong, Assam. For , it filed a return declaring income of ₹8,01,508. The Assessing Officer selected the case for scrutiny and completed a under on , determining taxable income at ₹35,66,191. The officer alleged that the company had failed to comply with statutory notices, had not produced correct accounts, and had made false statements in its return.
Based on this assessment, the Income Tax Officer filed three criminal complaints on . One complaint (CR Case No. 1103C/2019) was against the company and its two directors jointly, while separate complaints (CR Case Nos. 1099C/2019 and 1100C/2019) were filed individually against Sanju Phangcho and Bijoy Phangcho. The took cognizance and issued summons on .
Meanwhile, the company challenged the assessment. The Commissioner of Income Tax (Appeals) granted partial relief on , directing that a net profit rate of 2.33% be applied instead of 7%, as the company was a wholesale warehouse, not a retail outlet. Aggrieved, the company appealed to the ITAT, which on set aside the appellate order and remanded the matter to the Assessing Officer for fresh consideration, allowing the company to produce evidence and books of account. In the fresh assessment dated , the officer determined net profit at ₹11,87,032—far lower than the original figure—and initiated separate penalty proceedings under .
Petitioners Plead , Respondent Insists on Independence of Prosecution
Before the High Court, the petitioners argued that the ITAT’s order had knocked out the foundation of the criminal complaints. Relying on the maxim (when the foundation is removed, the structure falls), they contended that nothing survived in the complaints. They also argued that initiating penalty proceedings and prosecution simultaneously on the same facts amounted to .
The opposed the petitions, submitting that assessment and criminal prosecution are independent proceedings. It relied on the ’s decision in to argue that prosecution can be launched even while assessment or appeal is pending. The department maintained that the alleged offences—willful failure to produce accounts and false statements—continued to exist despite the reassessment.
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Justice Phukan rejected the argument, noting that penalty proceedings are civil in nature and can proceed alongside criminal prosecution. However, the court drew a critical distinction between a case where tax proceedings are merely pending and one where the assessment order—the very basis of the complaint—has been set aside .
Referring to the ’s ruling in , the court observed that once the ITAT, as the final fact-finding authority, cancels a finding of concealment, the prosecution based on that finding becomes unsustainable. The same principle applies to Section 277 offences, as held in and , where the tribunal’s finding that no false statement was made was held conclusive and binding on the criminal court.
The court also relied on , which held that where a person is exonerated in adjudication proceedings, continuation of criminal prosecution on identical facts is unjust and an .
Distinguishing P. Jayappan , the court clarified that the mere pendency of reassessment does not bar prosecution, but once the assessment order is set aside , the prosecution cannot survive.
The court further noted that the ITAT’s order was not a mere technical ; it had considered the company’s substantive contention that incorrect accounts were uploaded and that no proper opportunity was given. The subsequent reduction in income from ₹35.66 lakh to ₹11.87 lakh demonstrated the effect of the tribunal’s intervention.
Addressing the department’s reliance on the presumption of under , the court held that this presumption operates only during trial before the criminal court, not before the Assessing Officer at the complaint stage.
Key Observations
“Once the appellate order negates the falsity of the underlying assessment, and the assessment order is set aside by CIT(A) or ITAT on merit, the prosecution does not survive. And the assessee can move the Magistrate/High Court under or an equivalent provision to quash the complaint/prosecution.”
“If the Tribunal has set aside the order of concealment and penalties, then there cannot be any concealment in the eyes of law and therefore, the prosecution cannot be proceeded with by the complainant, and that being so further proceedings will be illegal and without jurisdiction.”
“Another disturbing aspect is that apart from making the two Directors of the assessee company as accused…he also filed the other two CR Cases individually…based upon the same Assessment Order. This seems to be an abuse of the authority by the respondent herein.”
Complaints Quashed, Separate Director Cases Struck Down
The High Court found sufficient merit in all three petitions and allowed them. The court quashed CR Case No. 1103C/2019 against the company and its directors, and CR Case Nos. 1099C/2019 and 1100C/2019 against the directors individually. Relying on the ’s decision in , the court held that separate complaints against directors without arraigning the company are not maintainable, as requires the company to be an accused.
The judgment reinforces the principle that criminal prosecution under the Income Tax Act cannot proceed in a vacuum. When the factual foundation of the alleged offence is conclusively negated by the appellate authority, the prosecution falls with it. The decision also serves as a check on the ’s practice of filing multiple complaints against directors individually for the same alleged offence.
