1997 (2) TMI 25 - HC - Income Tax

Summary

Issues:
1. Whether the criminal complaints filed against the petitioner under section 276C of the Income-tax Act, 1961, are validRs.
2. Whether the petitioner was denied the opportunity to compound the matter before the institution of criminal prosecutionRs.
3. Whether the approach of the income-tax authorities in instituting the criminal complaints against the petitioner amounted to an abuse of the process of the courtRs.

Analysis:
1. The petitioner, a businessman, was subjected to criminal complaints under section 276C of the Income-tax Act, 1961, by the Income-tax Department for alleged wrong and belated returns. The petitioner contended that the assessments were based on a compromise with the Income-tax Commissioner, Kanpur, where it was understood that no penal action would be taken. The petitioner argued that since the assessments were compromised, there was no basis for criminal prosecution. It was further argued that the offence was compoundable under section 279, and the prosecution was initiated without offering an opportunity to compound the matter. The court noted that the authorities failed to follow the provisions of sub-section (2) of section 279, which allows compounding before or after the institution of proceedings. The court found that the failure to offer the petitioner an opportunity to compound the matter before prosecution amounted to an abuse of process of the court.

2. The court highlighted the significance of the provision in sub-section (2) of section 279, emphasizing that the petitioner, being a businessman, would likely have opted to compound the matter if given the opportunity before prosecution. The court reasoned that by not providing this opportunity, the Income-tax Department violated the principles of natural justice. It was observed that the petitioner, if given a chance to compound, could have avoided the disgrace and ordeal of prosecution by agreeing to terms set by the compounding authority. The court concluded that the failure to afford the petitioner this opportunity rendered the criminal complaints against the petitioner unjust and an abuse of the court's process.

3. In conclusion, the court held that the approach of the Income-tax authorities in initiating criminal complaints against the petitioner was legally flawed and amounted to an abuse of the court's process. The court found that the petitioner's assessments were based on mutual settlements with the understanding that no penal action would be taken. As the petitioner was not given the chance to compound the matter before prosecution and explain any errors or omissions, the court deemed the criminal complaints unjust. Consequently, the court allowed the petitions and quashed the criminal complaints filed against the petitioner.