Supreme Court: Penalty/criminal proceedings not to continue if adjudication proceedings in favour of person, except on technical grounds

Radheshyam Kejriwal v. State of West Bengal, on 18^th February, 2011

3 Judge bench, per majority of Justice H. S. Bedi and Justice C. K. Prasad

Question/s before the Hon’ble Court: “It is trite that standard of proof required in criminal proceedings is higher than that required before adjudicating authority and in case accused is exonerated before the adjudicating authority whether his prosecution on same set of facts can be allowed or not is the precise question which falls for determination in this case.”

Relevant facts: On 22nd May, 1992 various premises in occupation of the appellant Radheshyam Kejriwal besides other persons were searched by the officers of the Enforcement Directorate. The appellant was arrested on 3rd May, 1992 by the officers of the Enforcement Directorate in exercise of the power under Section 35 of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as the `Act') and enlarged on bail on the same day.

The Enforcement Directorate on the same allegation which was the subject matter of adjudication proceeding laid complaint against the appellant for prosecution under Section 56 of the Act before the Metropolitan Magistrate. After the issuance of process and exoneration in the adjudication proceeding appellant filed application for dropping the proceedings, inter alia, contending that on the same allegation the adjudication proceedings having been dropped and the appellant exonerated, his continued prosecution is an abuse of the process of the Court.

Upholding the appeal of the accused, the Hon’ble Court held that:

“Para 19: “It will not make any difference on principle that latter judgments pertain to cases under the Income Tax Act. The ratio which can be culled out from these decisions can broadly be stated as follows:-

(i) Adjudication proceeding and criminal prosecution can be launched simultaneously;

(ii) Decision in adjudication proceeding is not necessary before initiating criminal prosecution;

(iii) Adjudication proceeding and criminal proceeding are independent in nature to each other;

(iv) The finding against the person facing prosecution in the adjudication proceeding is not binding on the proceeding for criminal prosecution;

(v) Adjudication proceeding by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20 (2) of the Constitution or Section 300 of the Code of Criminal Procedure;

(vi) The finding in the adjudication proceeding in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceeding is on technical ground and not on merit, prosecution may continue; and

(vii) In case of exoneration, however, on merits where allegation is found to be not sustainable at all and person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue underlying principle being the higher standard of proof in criminal cases. (emphasis supplied)

In our opinion, therefore, the yardstick would be to judge as to whether allegation in the adjudication proceeding as well as proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceeding, the trial of the person concerned shall be in abuse of the process of the court.”

The decision is available here.

Mumbai ITAT: Prior to 2003, if Assessee has filed earlier returns, no penalty for non-filing of return in case returns filed in earlier years

M/s Noble Electric Co. v. Income Tax Officer, on 11^th February, 2011

ITA No. 1655/Mum/2007

Assessment Year: 2001-02

Question/s before the Hon’ble Tribunal: whether as per the explanation (3) to section 271(1)(c) as exists prior to 1.4.2003, the assessee’s non filing of the return of income for the assessment year under consideration would be deemed as concealment of particulars of income.

Relevant facts: The assessee is a partnership firm and did not file return of income u/s 139(1) within a period as prescribed under the Act. The notice under sect ion 142(1) was issued on 26.12.2001 requesting the assessee to file its return of income for the assessment year under consideration. The AO passed the assessment u/s 144(3) of the Act estimating the total income of the assessee at Rs.2,45,63,230/ - being the short term capital gain on sale of immovable property consisting of land and building vide agreement dated 28.9.2000 for a total consideration of Rs.2,60,00,000/ - . The penalty proceedings were initiated under the provisions of sect ion 271(1)(c) of the Act and a penalty of Rs.1,81,55,071/ - was imposed vide order dated 30.3.2006.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 7: “In view of the above decision of the Hon. Jurisdictional High Court , we are of the view that the assessee had already filed the returns of income and some of them are definitely within the time prescribed u/s 139(4) then non filing of the return for the assessment year under consideration would not be deemed as concealment of the particulars of the income on the part of the assessee as per explanation (3) as stood prior to 1.4.2003. Accordingly, in the facts and circumstances of the case, and in view of the decision of the hon. Jurisdictional High Court in the case of CIT V/s Lata Shantilal Shah the penalty is liable to be deleted.”

The decision is available here.

Mumbai ITAT: The liability of the assessee u/s.201(1) is a pre-condition for imposition of penalty u/s.271C

ACIT (TDS) v. American School of Bombay Education Trust, on 31^st January, 2011

I.T.A.Nos.6349 to 6351/Mum/2009

Assessment Year: 1997-98 to 1999-2000)

Question/s before the Hon’ble Tribunal: Whether action u/s 201(1) deeming an assessee in default is a necessary precondition to the levy of penalty u/s 271C?

Relevant facts: Briefly stated facts of the case are that a survey action u/s.133A was taken upon the assessee on 24-01-2006. Orders u/s. 201(1) and 201(1A) were passed by the DCIT (TDS). Thereafter, penalty was levied u/s.271C, inter alia, in respect of the years under consideration. When the matter came up before the ld. CIT(A), the assessee contended that the Tribunal vide order dated 01-07- 2009 in ITA Nos.3622 to 3624/M/07 has observed that the initiation of proceedings in the instant years was beyond the period of 6 years and hence barred by limitation. Considering the fact that the Tribunal has quashed the orders u/s.201(1) and 201(1A) in respect of these years, the ld. CIT(A) ordered for the deletion of penalty u/s.271C in these years, against which the Revenue has come up in appeals before us.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 3: “A bare perusal of this provision indicates that penalty u/s.271C can be imposed only when there is a failure on the part of the assessee to deduct or pay the whole or any part of tax and, then, the quantum of penalty is equal to the amount of tax which such person failed to deduct or pay. From here, it emerges that there must be some sum which such person failed to deduct or pay. Such amount constitutes the basis for imposition of penalty u/s.271C. In other words, the liability of the assessee u/s.201(1) is a pre-condition for imposition of penalty u/s.271C… Once the assessee is not in default for failure to deduct or pay tax at source, naturally, there cannot any question of imposing penalty u/s.271C for the reason that the very basis of such penalty is the amount of tax which such person failed to deduct or pay as per law and when there is no such amount in existence, the possibility of imposing penalty will automatically be ruled out.”

The decision is available here.

Mumbai ITAT: No penalty u/s 271(1)(c) for tax evasion when final determination of income on Minimum Alternate Tax basis.

Ruchi Strips & Alloys Ltd. v. DCIT, on 21^st January, 2011

Assessment Year/s: 2003-04, 2005-06

Question/s before the Hon’ble Tribunal: Whether penalty can be imposed in respect of the assessment of total income under the normal provisions of the act when ultimately the total income is determined u/s. 115 JB of the Income Tax Act?

Relevant facts: There was a search and seizure operation u/s. 132 of the Income Tax Act, 1961 (the Act) carried out by the department in the business premises of the assessee on 17.11.2005. In the return of income filed after the search for Assessment year 2003-04 and 2005-06, the income surrender at the time of search was duly offered for tax. Since the total income computed as per the normal provision of the Act in both the aforesaid assessment years was less than the book profits computed u/s. 115 JB of the Act. The AO ultimately levied tax on the total income computed under the provision of section 115 JB of the Act.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 7: "In the facts and circumstances of the present case no penalty could have been imposed on the assessee because there was no tax sought to be evaded because the addition in respect of which penalty was imposed was made while computing total income under the normal provisions of the Act and ultimately the total income of the Assessee was determined on the basis of book profits u/s.115JB of the Act. We, therefore, cancel the penalty imposed by the Assessing Officer and confirmed by the CIT(A)."

The decision is available here.