NASIRUDDIN S/O PAPLUSAB BAGAWAN V. THE INCOME TAX DEPARTMENT

WP/112881/2019

AI Insights

The case involves three writ petitions filed by Nasiruddin, Fatima, and Raheesahmed against the Income Tax Department, challenging the complaints and orders taking cognizance by the JMFC IV Court, Belagavi. The complaints were based on allegations of willful failure to furnish income tax returns for income earned from a joint development project, which was discovered during a search and seizure operation under Section 132 of the Income Tax Act, 1961. The court considered the compounding nature of the offense under Section 276CC of the Income Tax Act and the procedural fairness in granting an opportunity to compound the offense before proceeding with prosecution.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 754230 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 07-02-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: Y V RAVIRAJ
• Assessee Lawyers: F V PATIL
• Keywords: Compounding; Income Tax; Joint Development Agreement; Prosecution; Search and seizure
• Section: 132; 276CC; 279

Judgement Text

"IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 7th DAY OF FEBRUARY 2022 BEFORE THE HON’BLE MR. JUSTICE M.NAGAPRASANNA WRIT PETITION NO.112881/2019 (GM-RES) C/W. WRIT PETITION NOS.112882/2019 & 112883/2019 BETWEEN 1 . NASIRUDDIN S/O PAPLUSAB BAGAWAN AGE.62 YEARS, OCC. AGRICULTURE AND BUSINESS R/O VIDYANAGAR, HUBBALLI, T.Q HUBBALLI DIST. DHARWAD ...PETITIONER (BY SRI F V PATIL, ADVOCATE) AND 1 . THE INCOME TAX DEPARTMENT, REP. BY ITS ASSISTANT DIRECTOR OF INCOME TAX (INVESTIGATION BELAGAVI), BY SRI. CHETAN KALAMKAR, AGE.30 YEARS, OCC. ASSISTANT DIRECTOR OF INCOME TAX, R/O SADASHIV NAGAR, BELAGAVI, TQ AND DIST. BELAGAVI 2. PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION), PANAJI, GOA. …RESPONDENTS (BY SRI Y V. RAVIRAJ, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA AND PRAYED TO A) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.20/2019 VIDE 2 ANNEXURE-D AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-D1. B) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.21/2019 VIDE ANNEXURE-E AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-E1. C) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.22/2019 VIDE ANNEXURE-F, AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-F1. IN WP 112882/2019 : BETWEEN 1 . FATIMA W/O NASIRUDDIN BAGAWAN AGE.51 YEARS, OCC. AGRICULTURE, R/O VIDYANAGAR, HUBBALLI, TQ. HUBBALLI, DIST. DHARWAD ...PETITIONER (BY SRI F V PATIL, ADVOCATE) AND 1 . THE INCOME TAX DEPARTMENT REP. BY ITS ASSISTANT DIRECTOR OF INCOME TAX (INVESTIGATION BELAGAVI) BY SRI. CHETAN KALAMKAR AGE.30 YEARS, OCC. ASSISTANT DIRECTOR OF INCOME TAX, R/O SADASHIV NAGAR BELAGAVI, TQ AND DIST. BELAGAVI 2. PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION), PANAJI, GOA. …RESPONDENTS 3 (BY SRI Y. V. RAVIRAJ, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA AND PRAYED TO : A) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.20/2019 VIDE ANNEXURE-D AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER NO.2 BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-D1. B) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.21/2019 VIDE ANNEXURE-E AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-E1. C) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.22/2019 VIDE ANNEXURE-F, AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-F1. IN WP 112883/2019 : BETWEEN 1 . RAHEESAHMED S/O NASIRUDDIN BAGAWAN AGE: 32 YEARS, OCC: AGRICULTURE AND BUSINESS, R/O: VIDYANAGAR, HUBBALLI, TQ: HUBBALLI, DIST: DHARWAD. ...PETITIONER (BY SRI F V PATIL, ADVOCATE) AND 1 . THE INCOME TAX DEPARTMENT 4 REP. BY ITS ASSISTANT DIRECTOR OF INCOME TAX, (INVESTIGATION BELAGAVI), BY SRI. CHETAN KALAMKAR, AGE: 30 YEARS, OCC: ASSISTANT DIRECTOR OF INCOME TAX, R/O: SADASHIV NAGAR, BELAGAVI, TQ AND DIST: BELAGAVI. 2. PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION), PANAJI, GOA. …RESPONDENTS (BY Y. V. RAVIRAJ, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA AND PRAYED TO A) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.20/2019 VIDE ANNEXURE-D AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER NO.2 BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-D1. B) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.21/2019 VIDE ANNEXURE-E AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-E1. C) QUASH THE IMPUGNED COMPLAINT DATED 22.03.2019 IN PCR NO.22/2019 VIDE ANNEXURE-F, AND THE ORDER TAKING COGNIZANCE AGAINST THE PETITIONER BY THE JMFC IV COURT, BELAGAVI, VIDE ANNEXURE-F1. THESE PETITIONS COMING ON FOR PRELIMINARY HEARING B GROUP THIS DAY, THE COURT MADE THE FOLLOWING: 5 ORDER These petitions raise a challenge to the complaint registered by the respondents/Department of Income-Tax and the order of the criminal Court taking cognizance of the offence. Since the issue involved in these petitions is common, these petitions are taken up together and disposed of by this order. 2. Heard Sri.F.V.Patil, learned counsel for the petitioners and Sri.Y.V.Raviraj, learned counsel for the respondents. 3. The petitioners in these cases are independent income tax assessees. A search and seizure action under Section 132 of the Income Tax Act, 1961 (‘the Act’ for short) was carried out in the case of the petitioners. During the course of search and seizure it was found that the assessee in W.P.No.112881 of 2019 along with family members had approximately 83 acres of land at Anchatgeri, Karwar Road, Hubli and the assessees had entered into joint development agreements with one Sri Milan Madhusudan Parikh, proprietor of M/s Golden Home Trading Corporation to develop the property owned by them. Owning of the property is independent to each of the assessees in these 6 cases. The plots that they own and the contents of joint development agreements are different as is pleaded. Pursuant to search and seizure it was found that the assessees family had not shown any income from this project notwithstanding the fact that they had shown income as receipts. During the post search investigation Sri Milan Madhusudan Parikh with whom joint development agreements had been entered into did show his income as Rs.1,64,96,584/- from the receipts of the same project called Golden Hillock Project. 4. On an allegation that the fact of earning income was within the knowledge and the income generating activity was carried out by Smt. Fatima Nasiruddin Bagwan, assessee in Writ Petition No.112882 of 2019 and on the ground that they have to file return of income representing the actual affairs of their business, proceedings were instituted under the provisions of Section 276CC of the Act. Section 276CC reads as follows: 276CC. If a person wilfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub- section (2) of the said section or 7 section 115WH or the return of income which he is required to furnish under subsection (1) of section 139 or by notice given under clause (i) of sub- section (1) of section 142 or section 148 or section 153A, he shall be punishable,— (i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine: Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of fringe benefits under sub-section (1) of section 115WD or return of income under sub-section (1) of section 139— (i) for any assessment year commencing prior to the 1st day of April, 1975; or (ii) for any assessment year commencing on or after the 1st day of April 1975, if— 8 (a) the return is furnished by him before the expiry of the assessment year; or (b) the tax payable by such person, not being a company, on the total income determined on regular assessment, as reduced by the advance tax or self- assessment tax, if any, paid before the expiry of the assessment year, and any tax deducted or collected at source does not exceed ten thousand rupees.” Section 276CC deals with failure to furnish returns of income. A person who wilfully fails to furnish in due time return of his income which he is required to furnish, he becomes amenable to prosecution to be instituted against him in terms of Section 279. Section 279 of the Act reads as follows: “279.(1) A person shall not be proceeded against for an offence under section 275A, section 275B, section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277 67, section 277A or section 278 except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority: Provided that the Principal Chief Commissioner or Chief Commissioner or, as the case may be, Director General may issue such instructions 9 or directions to the aforesaid income- tax authorities as he may deem fit for institution of proceedings under this sub-section. Explanation.—For the purposes of this section, “appropriate authority” shall have the same meaning as in clause (c) of section 269UA. (1A) A person shall not be proceeded against for an offence under section 276C or section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him under section 270A or clause (iii) of sub-section (1) of section 271 has been reduced or waived by an order under section 273A. (2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or Director General. (3) Where any proceeding has been taken against any person under subsection (1), any statement made or account or other document produced by such person before any of the income-tax authorities specified in clauses (a) to (g) of section 116 shall not be inadmissible as evidence for the purpose of such proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable would be reduced or waived, under section 273A or that the offence in 10 respect of which such proceeding was taken would be compounded. Explanation.—For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section.” Sub-section (1) of Section 279 makes the offence under the chapter in which Section 276CC comes compoundable. Therefore, an opportunity to compound is available to an assessee who is alleged of offence under Section 276CC. 5. It is not in dispute that discussions had gone on between the assessees and the respondents and the assessees were given a notice to show cause as to why prosecution proceedings under Section 276CC should not be initiated against all the assessees in these cases. On failure to furnish a reply to the notice seeking to show cause or appearance by the authorised representative or filing a written explanation, the respondents appear to have been constrained to initiate 11 proceedings against the assessees. The order granting sanction under Section 279(1) of the Act for launching prosecution under Section 276CC reads as follows: “A search and seizure action u/s 132 of the Income Tax Act, 1961 was carried out in the case of Shri. Nasiruddin Papulsab Bagwan, husband of Smt. Fatima Nasiruddin Bagwan on 28.04.2018. During the course of search and seizure action and post-search investigation, it was found that assessee along with her family members, owned approximately 83 Acres of land at Anchatgeri, Karwar Road, Hubli. Further it has been found that the assessee along with her family members entered into a Joint Development Agreement with Shri Milan Madhusudan Parikh, proprietor of M/s. Golden Home Trading Corporation to develop the previously mentioned 83 acres of land into 830 residential plots. The JDA was commenced in the year 2006 between the 12 parties to share the number of flats in the ratio of 50:50 i.e., 415 plots each party. The JDA was approved in the year 2009. Total number of sites in the said project is 830, out of which 415 sites belong to the assessee and her family members. The arrangement was such that the sales would be carried out by Milan M. Parikh and the sale proceeds received would be shared in to 50:50 ratios between Milan M. Parikh and assessee and her family members. In the first phase, total 400 sites were sold at the rate of Rs.84 square feet and in the second phase remaining 350 sited were sold at the rate of Rs 100 per square feet. Rs.19.5 Crore have been realized from this project. 3. Hence, the share of assessee and her family stands at Rs.9,75,00,000/-. It was found out that Shri Milan M. Parikh had shown Rs. 5,09,98,675/- for the F.Y. 2012-13, Rs.29,78,712/- for the F.Y 2013-14 and Rs.2,14,174/- for the F.Y 2014-15 as receipts 13 from this project in his returns of income. However, the members of assessee’s family have not shown any income from this project so far. 4. Further, it was also found during post-search investigation, that Shri. Milan Madhusudan Parikh has shown his income of Rs.1,64,96,584 from receipts from the same project called ‘Golden Hillock Project’ for Financial Year 2011-12, where Bagwan family and Shri Milan Madhusudan Parikh were 50:50 partners under JDA for this project. Hence, an equal amount of Rs.1,64,96,584 should have also been reflected by members of Bagwan family in their returns of income for respective assessment year. Thus, during search action and post-search investigations, it is found that assessee had earned Rs.99,50,740/- from project ‘Goldend Hillock’ in F.Y. 2011-12 but she had not filed return of income for AY 2012-13 despite having earned income of Rs.99,50,740/-. In view of above 14 mentioned facts, it is apparent that assessee willfully attempted to evade the taxes and not filed any return of income for the FY 2011-12 i.e., A.Y. 2012-13 in respect of income accrued out of the above said “Golden Hillock” project which amounts to Rs.99,50,740/-. The fact of earning such income was very much within the knowledge the income generating activity carried out by Smt.Fatima Nasiruddin Bagwan and therefore she should have filed the return of income with above become representing actual affairs of her business activities and paid taxes xxx on such income as provided under the Income Tax Act, 1961. This yearly shows that Smt. atima Nasiruddin Bagwan has willfully evaded tax. Hence, the provisions of section 276CC of Income Tax Act, 1961 are attracted in the case of the assessee, the relevant portion of section 276CC of Income Tax Act, 1961 is being reproduced here for reference: 15 “276CC. Failure to furnish returns of income, -If a person willfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub- section (2) of the said section or section 115WH or the return of income which he is required furnish under sub- section (1) of section 139 or by notice given under clause (i) of sub-section(1) of section 142 or section 148 or section 153A, he shall be punishable,- (i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine: 16 Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of fringe benefits under sub-section (1) of section 115WD or return of income under sub-section (1) of section 139- (i) for any assessment year commencing prior to the 1st day of April, 1975; or (ii) for any assessment year commencing on or after the 1st day of April, 1975, if- (a) the return is furnished by him before the expiry of the assessment year; or (b) the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees.” 6. In view of the above stated facts and discussions, assessee was 17 given an opportunity to explain as to why the prosecution proceedings under section 276CC of Income Tax Act, 1961, should not be initiated against her for her willful failure to furnish the return of income for the AY 2012-13. She was asked to furnish her explanation either by appearing in person before the undersigned or through Authorised Representative or by filing a written explanation on or before 20.02.2019. Assessee neither appeared in person before the undersigned nor submitted any explanation. She was given one more opportunity to submit her reply on or before 06.03.2019. But, assessee failed to avail this final opportunity too. 7. Therefore, I am satisfied that Smt. Fatima Nasiruddin Bagwan has failed to provide any explanation, thereby proving that she has no explanation to offer on the transaction 18 done by him. She has also failed to submit clarifications, if any, before the Investigaion authorities. Therefore, it is presumed that the Smt. Fatima Nasiruddin Bagwan has no explanation to offer in this regard. 8. For the detailed reasons as explained in the above Paras, I am satisfied that Smt. Fatima Nasiruddin Bagwan has willfully failed to furnish the returns of income even though there was taxable income in her hands. Hence, it is a fit case for launching of prosecution u/s 276CC of the Income Tax Act, 1961. 9. THEREFORE, I, R.Ravichandran, Principal Director of Income Tax (Investigation), Bengaluru in exercise of powers conferred upon me u/s 279(1) of Income Tax Act 1961 do hereby accord sanction for prosecution of Fatima Nasiruddin 19 Bagwan under section 276CC of the Income Tax Act 1961, for the F.Y.2011- 12, i.e. A.Y. 2012-13. I authorize Shri. Chetan D. xxx , Deputy Director of Income-Tax (Inv) Unit-1, Belagavi to institute criminal complaint under Section 276CC of the Income Tax Act, 1961 against Smt. Fatima Nasiruddin Bagwan in the court of jurisdiction at my xxx. 6. The learned counsel for the petitioners submits that since the offence is compoundable, if one more opportunity is given to them they would compound the offence and come out the prosecution. The learned counsel would further submit that no opportunity was given to the petitioners while granting sanction for prosecution as is always done by the Department. The opportunity given was only once by way of show cause notice seeking explanation from the hands of the petitioners. Jurisdictional issue is also raised by the learned counsel but would restrict his submissions seeking one more opportunity to compound. On the other hand, the learned counsel appearing 20 for the Department would not refute the position that notices are issued while according sanction for prosecution in respect of offences punishable under Section 276CC. The learned counsel would, however, accept that one more opportunity could be given to the petitioners to compound the offence in the light of no further proceedings have happened as interim order is operating in the case at hand throughout the pendency of these proceedings. 7. In the light of what is quoted in the order of sanction (supra) I deem it appropriate to accept the submission of the learned counsel appearing for the petitioners more so on two grounds –(i) since the offence alleged is compoundable and an opportunity ought to have been granted by the respondents/ department and (ii) though an opportunity is granted, the learned counsel for the petitioner submits, at that point in time the petitioner in Writ Petition No.112881 of 2019 was hospitalised and others were taking care of him. Therefore, in my considered view on launching of criminal prosecution against the petitioners if one more opportunity is granted and compounding is permitted no prejudice would be caused to the 21 Department. The other ground is that the interim order staying all further proceedings pursuant to the private complaint registered is operating in the cases at hand throughout and the prosecution has not proceeded further except cognizance being taken on the registration of private complaint by the respondents. 8. The learned counsel for the respondents also accedes to the fact that one more opportunity could be granted to the petitioners, but would submit that it should be within the time stipulated failing which they should not be permitted to have the benefit of this order. The submission sounds acceptance. 9. In the light of the afore-narrated facts and respective submissions made, I deem it appropriate to pass the following: O R D E R (i) The writ petitions are allowed in part subject to the assessees /petitioners filing applications for compounding within 6 weeks from the date of receipt of a copy of this order. 22 (ii) The respondents shall pass appropriate order accepting or declining to accept such compounding within a reasonable time thereafter. (iii) If the petitioners do not avail of this benefit within 6 weeks from the date of receipt of a copy of this order, they would not be entitled to the relief granted and prosecution against them shall continue. (iv) In the event the respondents would not accept compounding of the offence for reasons indicated therein, it is open to the petitioners to pursue their remedies as are available in law. (v) All contentions of both parties are kept open. SD JUDGE Vb/- "