M/S METRICSTREAM INFOTECH (INDIA) PVT LTD V. THE INCOME TAX DEPARTMENT

CRL.RP/841/2017

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The case involves MetricStream Infotech (India) Pvt. Ltd. and its directors, who were accused of failing to file income tax returns on time, leading to a penalty under Section 271F of the Income Tax Act, 1961. The company and its directors challenged the penalty and subsequent prosecution under Section 276CC, arguing that the penalty's cancellation by the Income Tax Appellate Tribunal should preclude further criminal proceedings. The High Court of Karnataka agreed, citing precedents that prohibit criminal prosecution on the same facts after an acquittal or penalty cancellation in administrative proceedings.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 695987 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 21-10-2021
• Assessment Year: misc
• Other Referred Cases: GHCL Employees Stock Option Trust v. India Infoline Ltd., P.S. Meherhomji v. K.T. Vijay Kumar and others, D.A.Mehta vs. Regional Director, Anil kumar and Others v. M.K.Aiyappa and another, National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, Rajendra Kumar Sitaram Pande and others v. Uttam and Another, K.C.Builders and Another v. Assistant Commissioner of Income Tax, Radheshyam Kejriwal v. State of West Bengal and another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: UDAYA HOLLA
• Keywords: Income Tax; Penalty; Prosecution; Revision petition; Special Court (Economic Offences)
• Section: 271F; 276CC

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF OCTOBER, 2021 BEFORE THE HON'BLE MR. JUSTICE V. SRISHANANDA CRIMINAL REVISION PETITION NO.841/2017 BETWEEN 1 . M/S METRICSTREAM INFOTECH (INDIA) PVT. LTD. AMR TECH PARK-4B NO.23 & 24, HONGASANDRA VILLAGE BEGUR HOBLI, BENGALURU-560068 REPRESENTED BY ITS AUTHORIZED REPRESENTATIVE MR RAJESH SHETTY 2 . GUNJAN K SINHA DIRECTOR M/S METRISTREAM INFOTECH (INDIA) PVT LTD #867, WARREN WAY, PALO ALTO CALIFORNIA -94303, USA. 3 MS.SHELLYE LOUISE ARCHAMBEAU, DIRECTOR M/S.METRISTREAM INFOTECH (INDIA) PVT. LTD. #217, ADA AVENUE, 24, MOUNTAIN VIEW CALIFORNIA -94043, USA. ...PETITIONERS (BY SRI UDAYA HOLLA, SR. COUNSEL FOR SRI K R KRISHNAMURTHY, ADVOCATE FOR LAWYERS INC) AND 1 . THE INCOME TAX DEPARTMENT BY DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -4(1)(2), 2 ROOM NO.230, 2ND FLOOR BMTC BUILDING, 80 FEET ROAD, 6TH BLOCK, KORAMANGALA BENGALURU-560095 …RESPONDENT (BY SRI JEEVAN J NEERALGI, ADVOCATE) THIS CRL.RP IS FILED U/S.397 R/W 401 CR.P.C BY THE ADVOCATE FOR THE PETITIONER PRAYING TO SET ASIDE THE ORDER DATED 15.04.2017 PASSED BY THE MAGISTRATE IN THE ABOVE CASE AND FURTHER BE PLEASED TO SET ASIDE THE ENTIRE PROCEEDINGS AGAINST THE PETITIONERS NO.1 TO 3 IN C.C.NO.170/2017 PENDING ON THE FILE OF SPL. COURT (ECONOMICS OFFENCE), BANGALORE. THIS CRIMINAL REVISION PETITION COMING ON FOR HEARING THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER Accused persons in CC No.170/2017 have filed this Revision Petition challenging the order dated 15.4.2017 passed by the Special Court (Economic Offences), Bengaluru, taking cognizance of the offence punishable under Section 276CC of the Income Tax Act, 1961. 2. The brief facts of the case are as under: It is contended that accused No.1 is a wholly owned subsidiary of MetricStream Inc., USA, a registered 3 Company engaged in the business of providing information Technology strategy, Software Development, testing of software, sales and marketing services in the area of Governance, risk, and compliance and quality management to its parent company. The accused Nos.2 & 3 are the Directors of the accused No.1 Company and normally residing in United States of America. Both accused Nos.2 & 3 are citizens of United States of America. 3. It is further contended that the accused No.1 Company submitted its return of income on 28.5.2013 for the assessment year 2012-13 declaring total income of Rs.7,69,73,312/- and paid self assessment tax of Rs.3,12,29,972/- along with interest towards the delay in payment of tax and delay in furnishing return of income. Thereafter, the accused No.1 company received a Show Cause Notice dated 22.7.2014 proposing to levy penalty under Section 271F of the Income Tax Act. The accused No.1 appeared before the authority through the authorised representative and submitted the details of the financial 4 difficulties faced by the company during the relevant period and contended that accused No.1 was prevented with reasonable cause from filing the return of income within the prescribed time. Despite the same, the Deputy Commissioner of Income Tax Circle 12(1) passed an order on 13.08.2014 and imposed penalty in a sum of Rs.5,000/- under Section 271F of the Income Tax Act. 4. Being aggrieved by the same, the accused No.1 challenged the said order before the Commissioner of Income Tax (Appeals)-IV. The said authority did not appreciate the contentions urged on behalf of the accused Company and dismissed the appeal by order dated 29.8.2016. Being aggrieved by the same, the accused No.1 approached the Income Tax Appellate Tribunal along with a memo dated 19.4.2021. The accused No.1 Company produced before this court the order passed by the Income Tax Appellate Tribunal, C-Bench, Bengaluru, in ITA No.2478/Bang/2019 for the assessment year 2012-13. 5 In the said order, the Income Tax Appellate Tribunal has held as under: \"16. There is a categorical finding returned by Ld. CIT(A) that assessee was unable to get loan from Citibank for meeting the expenses and Citibank also refused to extend the loan. Subsequently assessee was waiting for funds from the principle which was received only after 31.03.2013 by issue of series of 3 preferred stock. It has been observed by Ld. CIT(A) that the funds have been raised by assessee from issue of stock by the principle to the subsidiary, out of which the taxes were paid immediately and IT returns were furnished. 17. We observe that Ld.CIT(A) has considered the financial difficulties faced by assessee in a very practical manner thereby deleting the penalty of Rs.5000/- levied under section 271F of the act. This view is also supported by the ratio of Hon'ble Supreme Court in case of CIT vs. KTD Tires India Pvt. Ltd. (supra). Under such circumstances the view taken by Ld. CIT(A) do not call for any interference and the same is upheld.\" 5. Based on the same, the Revision Petitioner contended that when once the Income Tax Appellate 6 Tribunal has set aside the penalty imposed by the Income Tax Department, on the very same set of facts, there cannot be any further prosecution under Section 276CC of the Income Tax Act and sought for allowing the Revision Petition. 6. Sri Udaya Holla, learned Senior Counsel representing the Revision Petitioners, while re-iterating the grounds of the Revision Petition relying on the following judgments: 1. 2013(4) SCC 505 - GHCL Employees Stock Option Trust v. India Infoline Ltd., 2. 2015(1) SCC 788 - P.S. Meherhomji v. K.T. Vijay Kumar and others 3. ILR 1991 KAR 1558 - D.A.Mehta vs. Regional Director 4. 2013(10) SCC 705 -Anil kumar and Others v. M.K.Aiyappa and another 5. 2010(3) SCC 330 - National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another 6. 1999(3) SCC 134 - Rajendra Kumar Sitaram Pande and others v. Uttam and Another 7 7. 2004(2) SCC 731 - K.C.Builders and Another v. Assistant Commissioner of Income Tax 8. 2011(3) SCC 581-(Radheshyam Kejriwal v. State of West Bengal and another)- 7. Particularly he drew the attention of this court in respect of the decisions cited supra, and the relevant paragraphs are extracted hereunder: \"7. 2004(2) SCC 731 - (K.C.Builders and Another v. Assistant Commissioner of Income Tax) - When penalty levied under Section 271(1) (c) of I.T. Act (Failure to furnish the Returns, comply with notice, Concealment of income etc..), is cancelled, by ITAT, on the ground that there was no concealment by the Assessee, prosecution under Section 276C (wilful attempt to evade income tax) is liable to be quashed. (Para 24 and 25) If Tribunal (ITAT) has set aside the order of concealment and penalties, there is no concealment in the eye of law and prosecution cannot be proceeded with. (Para 26). 8. 2011(3) SCC 581-(Radheshyam Kejriwal v. State of West Bengal and another)- Standard of Proof in a criminal case is much higher than that of the adjudication proceedings and in 8 case the accused is exonerated before the Adjudicating Authority, prosecution on the same set of facts cannot be allowed. (Para 31 to 38). In case of exoneration before the Adjudicating Authority on merits, where the allegation is found to be not sustainable and the person held innocent, criminal prosecution on the same set of facts and Circumstances cannot be allowed to continue, the underline principle being the higher standard of proof in criminal cases. [(Para 38 (vii)] If allegations in the adjudicating proceedings as well as the proceeding for prosecution is identical and the exoneration in the adjudicating proceedings is on merits, then there is no contravention of the provisions of the Act and the trial (criminal prosecution would be an abuse of process of the court) (Para 39).\" 8. Per contra, learned counsel for the respondent Sri Jeevan J. Neeralgi, supported the impugned judgment and contended that the penal provisions are to be strictly adhered to, and the order passed by the Income Tax Appellate Tribunal has no bearing in continuing the 9 proceedings before the Special Court and sought for dismissal of the Revision Petition. 9. In view of the rival contentions of the parties, the sole point that would arise for consideration is: \"Whether the order taking cognizance of the offence under Section 276CC of the Income Tax Act, 1961, by the learned Judge presiding over the Special Court is suffering from legal infirmity and thus calls for interference\"? 10. In the case on hand, admittedly, there is a delay in filing the Income Tax returns. In respect of the same, sufficient explanation is offered by the accused No.1 Company. However, the said explanation was not accepted by the authorities and penalty of Rs.5,000/- was imposed on the accused No.1 company. It is not in dispute that Income Tax Appellate Tribunal by order dated 16.4.2021 has set aside the penalty imposed by the authorities as referred to supra. 10 11. Therefore, it is an admitted fact that the Income Tax department did not pursue the matter further against the order dated 16.4.2021 passed in Income Tax department. Therefore, the said finding has become final. 12. While recording such a finding, the Income Tax Appellate Tribunal did take into consideration the explanation offered by accused No.1 - company for the delay in filing the returns. It is also an admitted fact that the returns cannot be filed without paying the tax. Therefore, prosecuting accused No.1 company on the same set of facts cannot be countenanced in law especially in view of the authoritative pronouncement of the Hon'ble Apex Court in the cases of (1) K.C. Builders and another and (2) Radheshyam Kejriwal referred to supra. Further, there is no specific allegations made against accused Nos.2 and 3 as to how they are responsible for the alleged offence. Following the dictum in the case of K.C. Builders and another referred to supra, the proceedings cannot be continued at all. 11 13. The principles of law enunciated in the aforesaid decisions is analogously applicable to the case on hand inasmuch as the department has not challenged the order passed by the ITAT, and therefore, the finding has become final. When the adverse finding has not been challenged by the department, further prosecution on the very same set of facts would not be permissible. 14. In view of the fact that the Income Tax Appellate Tribunal has set aside the penalty for the accused No.1 Company, by accepting the cause shown, this court is of the considered opinion that prosecution of the Revision Petition under Section 276CC of the Income Tax Act cannot be continued. Therefore, this aspect of the matter has got bearing in further continuation of the proceedings as well. Accordingly, the point is answered in the affirmative and following order is passed: ORDER The Revision Petition is allowed. The order dated 15.4.2017 passed by the Special Court (Economic 12 Offences) Bengaluru, in CC No.170/2017 is hereby set aside and the proceedings stands terminated. Ordered accordingly. Sd/- JUDGE PL* "