SANDEEP KUMAR V. UNION OF INDIA THROUGH MAYANK MISHRA DEPUTY DIRECTOR OF INCOME TAX INV

Cr.M.P./2117/2018

AI Insights

The case involves two criminal miscellaneous petitions filed by Pradip Prasad and Sandeep Kumar against the Union of India through the Deputy Director of Income Tax. The petitions sought to quash the criminal proceedings initiated under Sections 276C, 277, and 278E of the Income Tax Act, 1961, which were based on allegations of tax evasion during the 2014 General Elections. The petitioners argued that the criminal proceedings were founded on an assessment order that had been set aside by the appellate authority, thus rendering the criminal charges baseless. The Income Tax Department opposed the quashing, asserting that criminal and appellate proceedings are independent and can coexist. However, the court found that the setting aside of the assessment order, which was crucial to the criminal charges, led to the unsustainability of the criminal proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 748012 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 03-07-2023
• Assessment Year: misc
• Other Referred Cases: K.C. Builders v. CIT, G.L. Didwania v. ITO, Radheshyam Kejriwal v. State of W.B., Suresh Kumar Agarwal Vs UOI, P. Jayappan vs. S. K. Perumal, First Income Tax Officer, Tuticorin
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R N SAHAY; ANURAG VIJAY
• Assessee Lawyers: ROHIT ROY
• Keywords: Accommodation entries; Assessment Order; Income tax evasion; Quashing of criminal proceedings; Shell companies
• Section: 276C; 277; 278E

Judgement Text

"IN THE HIGH COURT OF JHARKHAND AT RANCHI Cr.M.P. No. 2115 of 2018 ------ Pradip Prasad .... .... …. Petitioner Versus Union of India through Deputy Director of Income Tax .... .... .... Opp. Party WITH Cr.M.P. No. 2117 of 2018 ------ Sandeep Kumar .... .... …. Petitioner Versus Union of India through Deputy Director of Income Tax .... .... .... Opp. Party CORAM: HON'BLE MR. JUSTICE GAUTAM KUMAR CHOUDHARY For the Petitioners : Mr. Rohit Roy, Advocate For the Income Tax : Mr. R.N. Sahay, Sr. S.C. Mr. Anurag Vijay, A.C. to Sr. S.C. ------ Order No.09 / Dated : 03.07.2023 1. Criminal misc. petition no. 2115 of 2016 and Cr.M.P No.2117 of 2016 have been filed for quashing the entire criminal proceeding including the order taking cognizance passed in Complaint Case No. 01 & 2 of 2016 (T.R. No. 01&2 of 2016) respectively whereby and whereunder, cognizance has been taken under Sections 276C, 277 and 278E of the Income Tax Act, 1961. 2. Both these cases involve common questions of law and fact and are therefore heard jointly and shall be disposed of by the common order. 3. The main allegation against the petitioners is that during General Election, 2014 an information was received by the District Election Officer, Hazaribagh that a sum of Rs. 25 Lakh each was transferred by them in the Bank account of AJSU party. 4. In the assessment year 2014-15, the income tax return was filed by the petitioner Pradip Prasad showing income of Rs. 14,60,000/ and petitioner Sandeep Kumar filed income tax return showing income of Rs 6, 48, 030/-. 5. On enquiry by the Deputy Director of Income Tax was found that the company was involved in the transaction were paper companies for providing accommodation entries to the beneficiaries. On analysing the bank account of the petitioners it was found that before depositing the amount in his Bank Account it was rooted to several companies which were either filing return showing loss or sewing meagre income. Petitioners were found to have made false statement in verification and willful attemptted to evade tax with culpable mental state with regard to credit entry of Rs. 50 Lakh which had been routed through M/s Subh Suppliers Private Limited to the Political Party. The main allegation is that by the Shell Company for accommodation entry to the beneficiaries the amount was 2 received and then it was transferred to the political party in its account. 6. It is submitted on behalf of the petitioners that they were the Partners of M/s Rudra Construction and the amount was received in the account from M/s Subh Suppliers Private Limited. 7. The instant petitions for quashing are mainly based on the plea that the petitioners had appealed against the assessment order dated 30.12.2016 which is the basis of the instant criminal proceeding. The assessing officer assessed the income of Pradip Prasad at Rs.60,64,430/-and imposed tax of Rs.19,41,710/-. In case of Sandeep Kumar an income of Rs.51,48,000/-was assessed and tax of Rs.18, 82, 860 was imposed. 8. Said assessment order was challenged by the petitioners before the appellate authority in I.T. (Appeals), Hazaribagh which was registered as I.T Appeal No. 10079/HZB/2016 –17. In appeal the assessment order was set aside vide by the appellate authority vide order dated 27.9.2017. It was held that the appellant had made advance to AJSU party and the source of advance was bonafide received from prospective buyer of land. This transaction was verified from the bank account and other relevant documents i.e. agreement for land and subsequent registration of land on which the assessee paid capital gain tax in the assessment year 2016-17. It was also noted that the appellant had received some repayment of loan in the next financial year. 9. It is argued that in view of the fact that the order of assessment on which the present criminal proceeding hinges has been set aside, criminal prosecution cannot be permitted to continue in view of the ratio decided in (2004) 2 SCC 731, (2011) 3 SCC 581 para 38, 39, 47 and (2016) 12 SCC 315. 10. Learned Counsel Sri R.N. Sahay on behalf of the Department has vehemently opposed the quashing petitions. It is submitted that the criminal prosecution and the appellate proceedings are independent. Therefore, the criminal prosecution cannot be quashed or set aside merely on this ground. Reliance is placed on in the case of P. Jayappan vs. S. K. Perumal, First Income Tax Officer, Tuticorin, reported in 1984 AIR 1693 wherein it has been held that pendency of the reassessment proceedings cannot act as a bar to the institution of the criminal prosecution for offences punishable under Section 276 C or Section 277 of the Act. The institution of the criminal proceedings cannot in the circumstances also amount to an abuse of the process of the court. 11. It is submitted by learned counsel for the petitioner that the instant case is distinguishable from the case relied upon by the learned counsel for the Income Tax Department, as this is not a case where any assessment proceeding is pending, as the assessment order has been set aside. With the setting aside of the assessment order, the allegation of evasion of tax loses any traction. 3 12. After having considering the rival submissions advanced on behalf of both the sides what is apparent that the Department does not dispute that assessment order has been set aside by the appellate authority on merit. In the counter affidavit filed on behalf of the Income Tax Department, the averments made in para 11-12 of the petition, that the order of assessment has been set aside by the appellate authority and no appeal has been preferred against it, has not been disputed. 13. Under the circumstance the short question that falls for consideration is whether the impugned order and criminal proceeding is sustainable in view of the assessment order being set aside by the appellate authority? 14. There can be little doubt over the legal position as canvassed on behalf of the Department that both the proceedings viz assessment and criminal are independent proceedings. Both these proceedings can proceed simultaneously, but once assessment proceeding has attained its finality with the finding that there was no evasion of tax than continuation of criminal proceeding under Sections 276 C, 277 and 278E of the IT Act shall be without any foundation. Essence of offence under Section 276 C is evasion of tax which has been willfully made. Once the order of assessing authority regarding evasion of tax goes, the very foundation of the criminal prosecution is knocked down. This is because assessment proceeding is a civil proceeding in which the burden of proof is lighter than that in a criminal case. Once the department fails to prove in the civil proceeding the evasion of tax, prospect of the same being proved in a criminal proceeding becomes a remote possibility. In such circumstance it will be an exercise in futility, to permit such a criminal proceeding shall be an abuse of process of court. 15. Preponderance of judicial opinion leans in favour of the legal proposition as argued on behalf of the petitioner that in the event of assessment order being set aside the criminal proceeding is not sustainable. In K.C. Builders v. CIT, (2004) 2 SCC 731 it has been held as under 22. In the case of G.L. Didwania v. ITO [1995 Supp (2) SCC 724] the prosecution was launched against the assessee for making false statement. The assessing authority held that the assessee had intentionally concealed his income derived from ‘Y’ company which belonged to him, initiating prosecution against him. The appellant filed the appeal against the assessment order and the Tribunal set aside the assessment holding that there was no material to hold that ‘Y’ company belonged to the assessee. The assessee thereupon filed a petition before the Magistrate to drop the criminal proceedings and the application before the High Court under Section 482 to quash the criminal proceedings which were dismissed. On appeal, this Court held that the whole question was whether the appellant made a false statement regarding the income which according to the assessing authority had escaped assessment and so far as this issue was concerned, the finding of the Appellate Tribunal was conclusive and hence the prosecution cannot be sustained. Accordingly, this Court quashed the criminal proceedings and allowed the appeal filed by the assessee. In Radheshyam Kejriwal v. State of W.B., (2011) 3 SCC 581 the question 4 that fell for consideration is whether prosecution under Section 50 Foreign Exchange Regulation Act, 1973, was sustainable after the final assessment order was set aside by the appellate authority? Hon’ble Supreme Court quashed the criminal proceeding while holding that the standard of proof required in criminal proceedings is higher than that required before the adjudicating authority and in case the accused is exonerated before the adjudicating authority prosecution on the same set of facts cannot be allowed and it would be unjust and an abuse of the process of the court to permit the Enforcement Directorate to continue with the criminal prosecution. This Court in Cr.M.P. No.1553 of 2016 Suresh Kumar Agarwal Vs UOI has quashed criminal prosecution in similar fact situations. Without multiplying further authorities on the point this court is of the view that the criminal prosecution is not sustainable considering the fact that the assessment order regarding evasion of taxes has already been set aside by the appellate authority. The impugned order is set aside and the entire criminal proceeding arising out of Complaint Case No. 01 & 2 of 2016 (T.R. No. 01&2 of 2016) is quashed, so far these petitioner named above are concerned. In the result both the criminal miscellaneous petitions are allowed. (Gautam Kumar Choudhary, J.) Anit "