1994 (7) TMI 52 - HC - Income Tax

Criminal Proceedings High Court Income Tax Act Offences And Prosecution Wilful Attempt To Evade Tax

Issues Involved:

1. Authority to initiate prosecution.
2. Prosecution of a company under sections 276C and 277.
3. Specific allegations against individual accused.
4. Opportunity of being heard before sanction for prosecution.
5. Impact of pending appeals and references on criminal prosecution.
6. Validity of charges under section 276C.

Issue-wise Detailed Analysis:

1. Authority to Initiate Prosecution:

The petitioners argued that the prosecution should have been launched by the Commissioner of Income-tax (Appeals) and not by the Commissioner of Income-tax (Administration). The court did not explicitly address this issue as it focused on other grounds to quash the proceedings.

2. Prosecution of a Company Under Sections 276C and 277:

The petitioners contended that a company could not be imprisoned, and thus, no prosecution could lie against it under sections 276C(1)(i) and 277, which prescribe rigorous imprisonment and fine. The court referred to previous judgments, including Kusum Products Ltd. v. S. K. Sinha, ITO, and P. V. Pai v. R. L. Rinawma, Deputy CIT, which held that proceedings under section 277 could not be initiated against a company since imprisonment was a compulsory punishment. The court adhered to this precedent, quashing the prosecution against the company.

3. Specific Allegations Against Individual Accused:

The petitioners argued that the complaint lacked specific allegations against the 12 individual accused, making it unsustainable. The court agreed, citing Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Sham Sundar v. State of Haryana, which emphasized the need for specific allegations against each accused. The court noted that the complaint only mentioned the positions held by the accused without detailing their involvement in the alleged offense. Consequently, the court quashed the proceedings against the individual accused due to the vagueness of the charges.

4. Opportunity of Being Heard Before Sanction for Prosecution:

The petitioners argued that they should have been given an opportunity to be heard before the sanction for prosecution was granted, as offenses under sections 276C and 277 are non-cognizable and compoundable. The court agreed, referencing P. V. Pai v. R. L. Rinawma, Deputy CIT, and Shree Singhvi Bros. v. Union of India, which supported the need for a hearing before initiating prosecution. The court also cited the Supreme Court's decision in C. B. Gautam v. Union of India, which implied the requirement of natural justice unless expressly excluded. The absence of such a hearing in this case led the court to quash the proceedings on this ground as well.

5. Impact of Pending Appeals and References on Criminal Prosecution:

The petitioners contended that the criminal prosecution should be stayed due to pending appeals and references related to the same matter. The court did not explicitly address this issue, focusing instead on other grounds to quash the proceedings.

6. Validity of Charges Under Section 276C:

The petitioners argued that no offense was disclosed under section 276C as the return was filed based on the interim order, which restrained the application of section 43B. The court did not explicitly address this issue, as it quashed the proceedings on other grounds.

Conclusion:

The court allowed the writ application and quashed the impugned complaint dated September 25, 1993, as well as Case No. C/1286 of 1992. The court's decision was based on the following grounds:

1. The prosecution against the company could not stand due to the compulsory imprisonment prescribed under section 277.
2. The complaint lacked specific allegations against the individual accused, making it unsustainable.
3. The petitioners were not given an opportunity to be heard before the sanction for prosecution, violating principles of natural justice.

The court did not express any opinion on the other grounds raised by the petitioners, leaving them open for consideration in future cases. There was no order as to costs.

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