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Cr. M.P. No.590 of 2017
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Cr.M.P. No.590 of 2017
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Babita Jalan, wife of Shri Satendra Kumar Jalan, resident of S.N. Ganguly Road, Upper Bazar, Ranchi, P.O.-G.P.O., P.S.- Kotwali, Ranchi 834001, District Ranchi
… Petitioner
Versus 1. The State of Jharkhand 2. Union of India, Through Sri Mayank Mishra, S/o Shri Ramkrishna Mishra, Deputy Director of Income Tax (Investigation) Unit-II, Ranchi, P.O.- G.P.O., P.S.- Chutia, District Ranchi
… Opposite Parties
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For the Petitioner : Mr. Sumeet Gadodia, Advocate
Mrs. Shilpi Gadodia, Advocate
Mr. Ritesh Kr. Gupta, Advocate For the State
: Ms. Priya Shrestha, Spl.P.P.
For the O.P. No.2 : Mr. Anurag Vijay, Advocate
Mr. Srijan, Advocate
------ P R E S E N T HON’BLE MR. JUSTICE ANIL KUMAR CHOUDHARY
By the Court:- Heard the parties. 2. This Criminal Miscellaneous Petition has been filed invoking the jurisdiction of this Court under Section 482 of the Code of Criminal Procedure, 1973 with a prayer to quash/set aside the entire criminal proceeding including the order taking cognizance dated 10.11.2016 passed by the learned Special Sub-Judge-VII, Economic Offence, Ranchi in Complaint Case No.08 of 2016/Eco.Off. Case No.8 of 2016 for the offences punishable under Sections 276C (1), 277 and 278E of the Income Tax Act, 1961. 3. The brief fact of the case is that during the course of search and seizure operation in the residence of the petitioner, it was found that the petitioner had
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claimed huge Bogus Long Term Capital Gain during the Financial Year 2013-14 relevant to Assessment Year 2014-15; and the allegation against the petitioner is that the petitioner attempted to evade tax. A complaint was filed against the petitioner by the Union of India through the concerned officer being the Director of Income Tax (Investigation) Unit-II, Ranchi in the court of learned Special Sub-Judge, Economic Offences, Ranchi. Consequent upon the said complaint being filed, the learned Special Sub-Judge, Economic Offences, Ranchi found prima facie case for the offences punishable under Sections 276C (1), 277 and 278E of the Income Tax Act, 1961 and took cognizance of the said offences and also ordered for issuance of summons against the petitioner. 4. Learned counsel for the petitioner submits that the petitioner is innocent. It is next submitted that the prosecution is pre-mature. It is then submitted that till today no Assessment Proceeding including any penalty order has been initiated/passed against the petitioner pursuant to the search and seizure operation in her residence and till the date of filing of this Criminal Miscellaneous Petition, no notice for assessment/penalty was issued to her. Learned counsel for the petitioner relies upon the judgment of the Hon’ble Supreme Court of India in the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax reported in (2004) 2 SCC 731 paragraphs-8, 24 to 26 and 31 of which read as under:-
“8. On the above pleadings and facts and circumstances of the case, the following questions of law arise for consideration by this Court: (a) Whether a penalty imposed under Section 271(1)(c) of the Income Tax Act and prosecution under Section 276-C of the Income Tax Act are simultaneous? (b) Whether the criminal prosecution gets quashed automatically when the Income Tax Appellate Tribunal which is the final court on the facts comes to the conclusion
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that there is no concealment of income, since no offence survives under the Income Tax Act thereafter? (c) Whether the High Court was justified in dismissing the criminal revision petition vide its impugned order ignoring the settled law as laid down by this Court that the finding of the Appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been cancelled by the complainant following the Income Tax Appellate Tribunal's order no offence survives under the Income Tax Act and thus the quashing of the prosecution is automatic? (d) Whether the finding of the Income Tax Appellate Tribunal is binding upon the criminal court in view of the fact that the Chief Commissioner and the assessing officer who initiated the prosecution under Section 276-C(1) had no right to overrule the order of the Income Tax Appellate Tribunal? More so when the Income Tax Officer giving the effect to the order cancelled the penalty levied under Section 271(1)(c)? (e) Whether the High Court's order is liable to be set aside in view of the errors apparent on record?
In the instant case, the penalties levied under Section 271(1)(c) were cancelled by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in ITAs Nos. 3129-32. It is settled law that levy of penalties and prosecution under Section 276-C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276-C is automatic.
In our opinion, the appellants cannot be made to suffer and face the rigours of criminal trial when the same cannot be sustained in the eye of the law because the entire prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of the Appellate Tribunal supersedes the order of the assessing officer under Section 143(3) more so when the assessing officer cancelled the penalty levied.
In our view, once the finding of concealment and subsequent levy of penalties under Section 271(1)(c) of the Act has been struck down by the Tribunal, the assessing officer has no other alternative except to correct his order under Section 154 of the Act as per the directions of the Tribunal. As already noticed, the subject- matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the assessing officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eye of the law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. The Assistant Commissioner of Income Tax cannot proceed with the
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prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned Magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.
It is a well-established principle that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless and until the act of the appellants could have been described as culpable.”
and submits that in paragraph-24 of the said judgment, it has categorically been held in answer to the questions framed in paragraph-8 of the said judgment that since it is the settled law that levy of penalties and prosecution under Section 276-C are simultaneous, hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276-C is automatic. 5. Learned counsel for the petitioner draws the attention of this Court towards page-14 Annexure-B of the counter-affidavit dated 30.07.2024 filed by the opposite party No.2 which is the order passed in ITA No.271/Ran/2019 filed by the petitioner against the Assistant Commissioner of Income Tax, Central Circle-2, Ranchi and submits that in that order, the Income Tax Appellate Tribunal has directed the Assessing Officer to delete the penalty in question and consequent upon such deletion and as the said order of the Income Tax Appellate Tribunal has attained finality, having not been challenged anywhere, the prosecution of the petitioner be quashed.
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Cr. M.P. No.590 of 2017
Learned counsel for the petitioner further relies upon the judgment of a co-ordinate Bench of this Court in the case of Satendra Kumar Jalan vs. The State of Jharkhand & Another dated 29.11.2022 passed in Cr.M.P. No.591 of 2017 and submits that the co-ordinate Bench in a similar matter, in the facts of that case involving the husband of the petitioner, as one of the accused, considering the penalty was quashed on merit, quashed the entire criminal proceeding, including the order taking cognizance in that case. It is next submitted that initiation of the proceeding against the petitioner under Section 277 of the Income Tax for alleged false statement being given during the course of search and seizure operation, stands in similar footing vis-a-vis the initiation of the prosecution under Section 276 C of the Income Tax Act. It is next submitted that the statement of the petitioner recorded during the course of search and seizure operation cannot be termed to be false until and unless an adjudication order is passed contrary to the statement made by the petitioner declaring that profit from long term capital gain, which has accrued upon the petitioner, was in fact, bogus and not genuine. It is next submitted that Section 278 E of the Income Tax Act is not a penal provision of law and only provides for presumption as to the culpable mental state. It is also submitted by the learned counsel for the petitioner that it is the admitted case of the opposite party No.2, as has been averred in para-22 of the complaint, that the petitioner has suo moto deposited tax of Rs.32,73,660/- on 20.04.2016 vide challan No.516. Hence, it is submitted that the prayer, as prayed for in the instant Cr.M.P., be allowed. 7. Learned Spl.P.P. appearing for the State and the learned counsel for the opposite party No.2- Income Tax on the other hand vehemently oppose the
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prayer of the petitioner made in the instant Cr.M.P. Learned counsel for the opposite party No.2 relies upon the judgment of Hon’ble High Court of Punjab and Haryana in the case of R.P. Vashisht vs. Deputy Commissioner of Income-tax reported in (2008) 301 ITR 37, the judgment of which was pronounced on 05.09.2006 but even though by that date, the Hon’ble Supreme Court of India has already pronounced its judgment in the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra) but the said judgment of the Hon’ble Supreme Court of India was somehow not placed before the Hon’ble High Court of Punjab and Haryana, hence, without considering the principle of law laid down in the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra), some observation has been made in that case. Since the issues involved in this Cr.M.P. has been directly answered by Hon’ble Supreme Court of India in its judgment in the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra), this Court is not inclined to be persuaded by the observations of High Court of Punjab and Haryana in the case of R.P. Vashisht vs. Deputy Commissioner of Income-tax (supra) as such observations were made by the High Court of Haryana, when it did not have the benefit of going through the judgment of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra). It is lastly submitted by the learned Spl.P.P. appearing for the State and the learned counsel for the opposite party No.2- Income Tax, that this Cr.M.P., being without any merit, be dismissed. 8. Having heard the rival submissions made at the Bar and after carefully going through the materials available in the record, it is pertinent to mention here that, in view of the categorical answer given by the Hon’ble Supreme
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Court of India in the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra) that once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276-C of the Income Tax is automatic and the undisputed fact remains that the Income Tax Appellate Tribunal in ITA No.271/Ran/2019 has directed the Assessing Officer to delete the penalty in question and the said order of the Income Tax Appellate Tribunal has attained finality, so, this Court has no hesitation in holding that the continuation of this criminal proceeding against the petitioner will amount to an abuse of process of law as in view of the reiteration of the well-established principle by the Hon’ble Supreme Court of India in para-31 of the case of K.C. Builders & Another vs. Assistant Commissioner of Income Tax (supra) that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless and until the act of the appellants could have been described as culpable and there is nothing in the record to show that the act of the petitioner can be described as culpable. 9. So far as the offence punishable under Section 277 of the Income Tax Act is concerned, as has rightly been submitted by the learned counsel for the petitioner that the statement of the petitioner recorded during the course of search and seizure operation cannot be termed to be false until and unless an adjudication order is passed contrary to the statement made by the petitioner declaring that profit from long term capital gain which has accrued upon the petitioner, was in fact, bogus and not genuine and in the absence of any such material in the record, this Court is of the considered view that the prosecution of the petitioner for the offence punishable under Section 277 of the Income Tax
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Act, in the facts of the case, as discussed above, will also amount to abuse of process of law. 10. So far as the Section 278 E of the Income Tax Act is concerned, as has rightly been submitted by the learned counsel for the petitioner; the same is not a penal provision of law. 11. In view of the discussions made above, this Court is of the considered view that the continuation of this criminal proceeding against the petitioner will amount to abuse of process of law and this is a fit case where the entire criminal proceeding including the order taking cognizance dated 10.11.2016 passed by the learned Special Sub-Judge-VII, Economic Offence, Ranchi in Complaint Case No.08 of 2016/Eco.Off. Case No.8 of 2016, be quashed and set aside qua the petitioner. 12. Accordingly, the entire criminal proceeding including the order taking cognizance dated 10.11.2016 passed by the learned Special Sub-Judge-VII, Economic Offence, Ranchi in Complaint Case No.08 of 2016/Eco.Off. Case No.8 of 2016, is quashed and set aside qua the petitioner. 13. In the result, this Cr.M.P. stands allowed.
(Anil Kumar Choudhary, J.) High Court of Jharkhand, Ranchi Dated the 14th of August, 2025 AFR/ Animesh