Penalty Order Set Aside Leads To Automatic Quashing Of Prosecution Under Section 276C(1) Of Income Tax Act: Jharkhand High Court

Justice Sanjay Kumar Dwivedi, while delivering the judgment, emphasized, “In view of the above judgments, the Court comes to the conclusion that once penalty order is set aside, it will be presumed that there is no concealment and quashing of prosecution under Section 276C(1) of the Income Tax Act is automatic. The petitioner cannot be allowed to suffer and to face criminal trial and the same cannot sustain in the eyes of law.”

“There is no doubt that penalty proceeding and prosecution can go simultaneously in the facts and circumstances of the cases, however, in the case in hand, the penalty proceeding has already been set aside in view of the appellate order. The Court finds that in view of the above judgments, the case of the petitioner is fit to be allowed. Further, if the penalty proceeding has been set aside, mens rea is one of the essential ingredients of a criminal offence,” he added.

The ruling stems from a petition seeking the quashing of criminal proceedings in connection with C/2 Case No.684 of 2016. The complaint was filed by the second party (opposite party no.2), alleging that the petitioner had filed income tax returns for the Assessment Year 2011-12 on 31.07.2011, declaring a total income of Rs. 18,83,940/-. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS).

Subsequently, the Deputy Commissioner of Income Tax, Jamshedpur, passed an assessment order under Section 143(3) of the Income Tax Act on 13.09.2013, determining the total income at Rs. 20,66,090/-. This assessment included three additions: Rs. 1,64,695/- for undisclosed interest income on National Saving Certificates, Rs. 4,351/- for undisclosed bank interest, and Rs. 13,100/- for undisclosed interest on Fixed Deposits with Telco Ltd.

It was alleged that the petitioner had deliberately concealed income totaling Rs. 1,82,146 and provided inaccurate details, leading to the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. The penalty was confirmed by the Commissioner of Income Tax (Appeal), Jamshedpur, on 27.11.2015. The petitioner was accused of attempting to evade tax liability by furnishing inaccurate particulars of income, which constituted concealment of income.

The sanction order for launching prosecution under Section 276C(1) of the Income Tax Act for the Assessment Year 2011-12 was accorded by the Principal Commissioner of Income Tax, Jamshedpur, on 03.03.2016. However, an apparent mistake in the sanction order was rectified by the Principal Commissioner of Income Tax on 21.03.2016.

In its ruling, the Jharkhand High Court noted that penalty proceedings and prosecution can run simultaneously, but in this case, the penalty proceeding had already been set aside based on an appellate order. Consequently, the Court held that the petitioner's case merited allowance, as the setting aside of the penalty order implied the absence of concealment.

In conclusion, the Jharkhand High Court quashed the entire criminal proceedings connected with C/2 Case No.684 of 2016, including the order dated 30.05.2016 and the order dated 15.07.2017. The petition seeking this action was allowed and disposed of accordingly.

Counsel For the Petitioner : Mr. Amit Kumar Das, Advocate

Counsel For the State : Mr. Vishwanath Roy, S.P.P.

Counsel For O.P. No.2 : Mr. Anurag Vijay, Jr. S.C. Mr. R.N. Sahay, Sr. S.C. Ms. Sharda Kumari, Advocate

LL Citation: 2023 LiveLaw (Jha) 41

Case Title: Pralay Pal vs. The State of Jharkhand

Case no.: Cr.M.P. No. 2266 of 2017

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