PRESCON REALTORS AND INFRASTRUCTURES PVT LTD AND ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX 10(3) (2) AND ORS.
What did the High Court hold?
The High Court quashed and set aside the criminal prosecution and the order issuing process. The Court reasoned that Section 276C(2) of the Income Tax Act requires a 'wilful attempt' to evade tax, not merely a failure to pay. The facts indicated that the petitioners settled their outstanding tax dues and interest on March 25, 2015, prior to the show cause notice issued on September 27, 2017, and the prosecution launched on February 9, 2018. The Court found that the proactive act of paying taxes before the show cause notice undermined the prosecution's case of wilful evasion. Furthermore, the Court observed that the records failed to demonstrate the petitioners' wilful and malafide intention to evade tax obligations. The Court also noted that the impugned order issuing process demonstrated a non-application of mind by the Magistrate, as it did not reflect a careful examination of the material on record and the statutory provisions. The ratio decidendi is that a prosecution under Section 276C(2) for wilful tax evasion cannot be sustained if the tax is paid before the show cause notice and there is no evidence of wilful intent to evade, and the Magistrate must apply their mind before issuing process. The petition was disposed of accordingly.
What were the facts?
The petitioners, Prescon Realtors and Infrastructures Pvt Ltd and its director Vinay Kedia, challenged a criminal prosecution initiated by the Deputy Commissioner of Income Tax and Pr Commissioner of Income Tax under Sections 276C(2), 278B, and 278E of the Income Tax Act, 1961. The prosecution stemmed from alleged tax evasion for assessment year 2014-2015, where a significant balance of tax liability remained outstanding by the due date. The petitioners argued that they settled the outstanding liability, filed revised returns, and were entitled to a refund. They contended that the prosecution was launched mechanically without considering these facts and their good faith, citing several High Court and Supreme Court judgments. The revenue argued that the petitioners wilfully attempted to evade taxes by deferring payment.
What were the issues?
1. Whether the criminal prosecution initiated under Section 276C(2) of the Income Tax Act, 1961, for alleged wilful attempt to evade tax is sustainable when the tax liability was settled before the issuance of a show cause notice and the assessee was entitled to a refund? (Question of law and fact) 2. Whether the issuance of process by the Magistrate demonstrates an application of mind to the facts and statutory provisions, warranting quashing of the prosecution? (Question of law) Assessee's contentions: The petitioners argued that a mere delay in tax payment due to financial difficulties should not be construed as wilful evasion, especially when payments are made before the show cause notice and the assessee is eligible for a refund. They contended that once a revised return is filed and accepted, the original return is superseded, and prosecution based on it is invalid. They relied on Unique Trading Co. v. CIT, S.P. Velayutham v. Asst. CIT, Ganga Devi Somani v. State of Gujarat, CIT v. Mahendra Mills, K. E. Sunil Babu v. Steel Processors, Vinodchandra C. Patel v. State of Gujarat, Mrs Noorjahan v. Dy. CIT, and Harshad Valia v. State of Maharashtra. Revenue's contentions: The respondents argued that the petitioners were obligated to pay taxes by the due date and their deferral constituted wilful evasion under Section 276C(2). They relied on Prem Dass v. ITO, Prakash Nath Khanna v. CIT, Sasi Enterprises v. CIT, and DM Khathir Anand v. NS Phanidharan.
Which sections of the Income-tax Act were involved?
Section 276C(2), Section 278B, Section 278E
AI-generated summary — verify with the full judgment below
Chitra Sonawane.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION Criminal Writ Petition No.59 of 2019
Prescon Realtors and Infrastructures Pvt Ltd A Company incorporated under the Companies Act, 1956, having its Registered office at 231, 2nd floor, Rahul Mittal Industrial Premises Co-op. Ltd., Sir MV Road, Andheri East, Mumbai – 400059. 2. Vinay Kedia Director of Prescon Realtors and Infrastructures Pvt Ltd, C-1903/04, Lakshachandi Heights, Gokuldham, Goregaon, (E), Mumbai – 400063. … Petitioners Versus
Deputy Commissioner of Income Tax-10(3)(2). Room No.509, 5th floor, Aaykar Bhavan, MK Road, Near Churchgate Railway Station, Mumbai – 400020. 2. Pr Commissioner of Income Tax-10 Room No.416, 4th floor, Aaykar Bhavan, MK Road, Near Churchgate Railway Station, Mumbai – 400020. __________________________________________________ CHITRA SANJAY SONAWANE SANJAY SONAWANE Date: 2025.01.23 10:28:40 +0530
Chitra Sonawane.
The State of Maharashtra Through Public Prosecutor High Court, Bombay. … Respondents ---- Senior Advocate Mr Beni Chatterjee, along with Mr Rahul Hakani, Mr Udayan Mukherjee and Ms Tanya Jha, i/by Kirit Hakani, for the petitioners. Mr Akhileshwar Sharma, for respondents No.1 and 2. Ms Sangeeta E Phad, APP, for respondent No.3/ State. ---- Coram: R.N. Laddha, J. Date: 22 January 2025. P.C.: By this petition, the petitioners seek to challenge the criminal prosecution initiated by respondents No.1 and 2 under Sections 276C (2) read with 278B and 278E of the Income Tax Act, 1961 (‘IT Act’), before the Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, and the issuance of process thereunder. The substantive relief reads as follows: “a) that this Hon’ble Court may be pleased to issue writ of certiorari or writ in the nature of certiorari or any other appropriate Writ, direction or order quashing and/ or setting aside the criminal prosecution in the Criminal Case No.217/SW/2018 (Exh. “J” herein) against the Petitioners pending on the file of Ld. __________________________________________________ Chitra Sonawane.
Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai including impugned Order dated 23rd July, 2018 (Exh. “I” herein) after calling for the records and proceedings thereof.”
The prosecution alleges that for the assessment year 2014- 2015, petitioner No.1 electronically filed a return on 20 November 2014 reporting a total income of Rs.4,57,88,380/- and admitting a tax liability of Rs.1,61,26,448/-. Of this liability, Rs.75,00,000/- was paid as advance tax and Rs.1,40,232/- was credited from TDS. However, the remaining balance of Rs.84,86,220/- remained outstanding until 25 March 2015. As this substantial amount was not settled by the stipulated due date for filing the return, the petitioners are accused of evading payment of tax and interest.
Mr Beni Chatterjee, the learned Senior Counsel appearing on behalf of the petitioners, contends that for the assessment year 2014-2015, petitioner No.1 through petitioner No.2 reported a total income of Rs.4,57,88,380/- and admitted tax liability of Rs.1,61,26,448/-. Out of this, Rs.76,40,232/- was settled through advance tax and TDS. However, the outstanding liability was settled on 25 March 2015 after securing a loan from the Indian Overseas Bank. Subsequently, petitioners filed a revised return of income on 27 March 2015, __________________________________________________ Chitra Sonawane.
claiming additional TDS Credit, which the respondents accepted. On 30 March 2016, by an assessment order for the assessment year 2013-2014, the petitioners were allowed to apportion expenses of Rs.49,85,525/- towards work-in- progress in the assessment year 2014-2015. Considering this, the petitioners filed another revised return on 31 March 2016, reporting a reduced income of Rs.4,08,02,850/- and acknowledging a tax liability of Rs.1,46,25,041/-. Since the petitioners had already paid taxes exceeding this liability, i.e. Rs.1,61,71,835/-, they were entitled to a refund of Rs.15,46,790/-. On 30 December 2016, respondents No.1 and 2 scrutinised the revised returns and made certain additions to the declared income. In response, on 1 February 2017, the petitioners filed a rectification application to adjust the credited TDS, which entitled them to a refund of Rs.6,25,090/-. By a letter dated 29 October 2018, respondents No.1 and 2 approved the rectification and confirmed the petitioners’ entitlement to a refund, which was set off against the outstanding demand for assessment year 2013-2014. In the meantime, on 27 September 2017, the respondents issued the show cause notice and launched prosecution without considering the petitioners’ reply.
Mr Chatterjee further argues that the petitioners settled __________________________________________________ Chitra Sonawane.
their tax obligations before receiving the show cause notice, demonstrating their good faith. A mere delay in paying taxes due to financial difficulties should not be interpreted as an intentional act to evade or avoid taxes, particularly when the payments are made before the issuance of a show-cause notice, and the assessee is eligible for a refund. Further, once a revised return is filed and accepted, the original return stands replaced, and the assessee cannot be prosecuted for the original return. According to the learned Senior Counsel, without considering these aspects, the learned Magistrate issued the process mechanically without any application of mind. In support of his submissions, Mr Chatterjee relies on the decisions in (i) Unique Trading Co. v. CIT1, (ii) S.P. Velayutham v. Asst. CIT2, (iii) Ganga Devi Somani v. State of Gujarat3, (iv) CIT v. Mahendra Mills4, (v) K. E. Sunil Babu, Assistant Commissioner of Income- tax v. Steel Processors5, (vi) Vinodchandra C. Patel v. State of Gujarat6, (vii) Mrs Noorjahan v. Dy. CIT7, and (viii) Harshad Valia v. State of Maharashtra8. 1 (2024) 467 ITR 682. 2 (2022) 442 ITR 74. 3 (2021) 437 ITR 323. 4 (2000) 3 SCC 615. 5 (2006) 286 ITR 315. 6 (2002) 253 ITR 289. 7 2022 SCC OnLine Mad 1851. 8 Criminal Application No.719 of 2019 dated 11 December 2019 (Bombay High Court). __________________________________________________ Chitra Sonawane.
Mr Akhileshwar Sharma, the learned Counsel representing respondents No.1 and 2, opposing the petition, submits that the petitioners were obligated to pay the due taxes in the same financial year through advanced tax on or before the specified due date. However, the petitioners deferred the payment of taxes for a year, thereby wilfully attempting to evade taxes and committing an offence under Section 276C (2) of the IT Act. To bolster his submissions, Mr Sharma relies on (i) Prem Dass v. ITO9, (ii) Prakash Nath Khanna v. CIT10, (iii) Sasi Enterprises v. CIT11, and (iv) DM Khathir Anand v. NS Phanidharan, Assistant Commissioner of Income-tax12. 6. This Court has given anxious consideration to the rival submissions canvassed across the Bar.
Upon a perusal of the records, it appears that respondents No.1 and 2 seek to prosecute the petitioners primarily under Sub-Section (2) of Section 276C of the IT Act. Section 276C of the IT Act reads as follows: “(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under 9 (1999) 5 SCC 241. 10 (2004) 9 SCC 686. 11 (2014) 5 SCC 139. 12 (2023) 154 taxmann.com 52 (Madras). __________________________________________________ Chitra Sonawane.
reports his income, under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,— (i) in a case where the amount sought to be evaded or tax on under-reported income 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 rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the court, also be liable to fine. Explanation.—For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person— __________________________________________________ Chitra Sonawane.
(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or (ii) makes or causes to be made any false entry or statement in such books of account or other documents; or (iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or (iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.”
The language of Sub-Section (1) of Section 276C and the use of terms such as ‘wilful attempt’ and ‘to evade’ make it evident that the provision seeks to penalise acts or omissions by the assessee specifically intended to evade tax liability rather than a mere failure to pay tax. The IT Act includes provisions to safeguard the revenue’s interests by enabling recovery of unpaid tax along with the applicable interest and/or penalties when tax is not paid on time. The essence of the offence under Sub-Section (2) of Section 276C lies in deliberate non-payment __________________________________________________ Chitra Sonawane.
of tax, not in a simple failure to make payment. A plain reading of the provision in Section 276C (2) does not suggest that a mere failure to pay the tax, interest, or penalty falls within its scope.
In Gujarat Travancore Agency v. CIT13, the Hon’ble Supreme Court, while elucidating the distinction qua breach of Sections 271 and 276C of the IT Act, underscored that, in cases of violation under Section 276C due to a taxpayer’s wilful failure, it is necessary to establish mens rea to justify the imposition of a sentence. In the case of S.P. Velayutham (supra), it was held that the term ‘wilful attempt’ as used in Section 276C of the IT Act cannot be extended to merely failing to pay the tax.
Similarly, in the decision of Ganga Devi Somani (supra), it was observed that while delayed payment under the provisions of the IT Act may warrant penalties or interest, under no circumstances (based on the facts and circumstances presented by the petitioner) could it be interpreted as an attempt to evade tax, warranting the prosecution of the petitioner for the alleged offence under Section 276C (2) of the IT Act.
From a cursory reading of the records, it appears that the 13 (1989) 3 SCC 52. __________________________________________________ Chitra Sonawane.
fact of the petitioners reporting an income of Rs.4,57,88,380/- with a tax liability of Rs.1,61,26,448/-, of which Rs.76,40,232/- was paid via advance tax and TDS and the remainder was settled on 25 March 2015, for the assessment year 2014-2015 remains uncontentious. On 27 March 2015, the petitioners filed a revised return, claiming additional TDS Credit, which was accepted. On 30 March 2016, the petitioners were allowed to allocate expenses of Rs.49,85,525/- for work-in-progress, leading to another revised return on 31 March 2016, reporting a reduced income of Rs.4,08,02,850/- and a tax liability of Rs.1,46,25,041/-. As the petitioners had paid taxes in excess, they were entitled to a refund. On 30 December 2016, respondents No.1 and 2 scrutinised the revised returns and added to the declared income. The petitioners filed a rectification application on 1 February 2017, which was allowed on 29 October 2018, resulting in a refund entitlement of Rs.6,25,090/- which was set off against an outstanding demand for the 2013-2014 assessment year. According to respondents No.1 and 2, a show cause notice was issued to the petitioners on 27 September 2017 for the assessment year 2014-2015. Thereafter, the prosecution was launched on 9 February 2018. Admittedly, before putting the criminal law in motion, the petitioners had already deposited the outstanding tax dues and interest on 25 March 2015. At __________________________________________________ Chitra Sonawane.
this pivotal stage, it is essential to recognise that the notion of tax evasion cannot hold water when the prosecution does not claim or demonstrate that the petitioners under-reported income or reduced their tax obligations. The proactive act of paying taxes before issuing a show cause notice, which is acknowledged, undermines the prosecution’s case of wilful evasion of payment of tax and interest. The records, especially the complaint, fail to reflect the petitioners’ wilful and malafide intention to evade, avoid or neglect their tax obligations.
Moreover, the impugned order of issuance of process against the petitioners demonstrates non-application of mind. Although the Magistrate is not required to record detailed reasons while passing an order of issuing process, such orders are not an empty formality, and doing so as a matter of routine, without cautiously examining the material on record and appreciating the statutory provisions, may result in putting the criminal law in motion and summoning an innocent individual to stand trial. Before issuing process, the Magistrate must carefully exercise his judicial discretion and scrutinise the material on record. He must satisfy himself and determine whether sufficient grounds exist to summon the accused to stand trial. Once he forms such an opinion, he must record it in his order. When an issue process order fails to reflect such __________________________________________________ Chitra Sonawane.
application of mind, it is liable to be set aside.
In light of the above and the facts and circumstances of the present case, the criminal prosecution initiated against the petitioners by respondents No.1 and 2 in CC No.217/SW/ 2018 before the Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, and the impugned order dated 23 July 2018 passed therein are quashed and set aside.
The petition stands disposed of accordingly. (R.N. Laddha, J.) __________________________________________________
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