2025 (7) TMI 1382 - HC - Income Tax

Conviction u/s 276CC when penalty proceedings u/s 271(1)(b) had been quashed by the CIT(A) - assessee failed to file a return within the prescribed period - notice u/s 153A of the Act was issued - wilful default attracting criminal liability u/s 276CC as assessee failure to file income tax returns in response to a notice under Section 153A HELD THAT - As the penalty proceedings under Section 271(1)(b) of the Act are concerned these arose from non-compliance with notices issued u/s 142(1) and not u/s 153A. The prosecution under Section 276CC on the other hand rests on the independent default of non-filing of returns in response to the Section 153A notice. These proceedings as discussed above therefore emanate from distinct defaults under the Act. The mere fact that the penalty u/s 271(1)(b) was later set aside by the CIT(A) does not in law efface or neutralise the separate statutory offence under Section 276CC. This distinction fundamental to the scheme of the Act appears to have been lost sight of by the Appellate Court. This Court is of the considered opinion that the reasoning adopted by the Appellate Court is unsustainable. The acquittal order resting as it does solely on the setting aside of penalty proceedings u/s 271(1)(b) fails to appreciate the independent statutory footing of prosecution under Section 276CC. The Revenue s contention that the offence under Section 276CC stands on its own merits and does not get extinguished merely because a penalty for a separate default has been annulled is well-founded in law. Accordingly the acquittal order passed by the Appellate Court cannot be upheld on this aground. However this does not conclude the present inquiry. A critical aspect which remains to be considered is whether the Respondent s non-compliance with the Section 153A notice was wilful a necessary ingredient to attract criminal culpability under Section 276CC. This element of wilfulness merits careful examination as it goes to the very root of criminal intent which distinguishes mere technical or procedural lapses from punishable defaults. As in Gujarat Travancore Agency 1989 (5) TMI 1 - SUPREME COURT affirmed that no sentence can be imposed under such provisions unless the element of mens rea is established. This reinforces the principle that the punitive consequences under Section 276CC hinge not merely on the act of non-filing but on the deliberate and conscious nature of such non-compliance. It is equally important to take note of Section 278E of the Act which introduces a reverse burden clause in prosecutions under provisions such as Section 276CC. This section mandates that the Court shall presume the existence of a culpable mental state including the element of mens rea on the part of the accused. The Supreme Court in Sasi Enterprises 2014 (2) TMI 19 - SUPREME COURT has categorically held that once the statutory presumption under Section 278E is triggered the burden shifts to the accused to disprove the existence of a wilful default. In other words the onus lies on the assessee to establish beyond reasonable doubt that the failure to file returns within the prescribed period was not intentional. Respondent s plea that the presumption under Section 278E stands rebutted. The documentary record and contemporaneous explanations establish beyond reasonable doubt that the failure to file returns in response to the Section 153A notice was not wilful. The absence of mens rea therefore vitiates the very foundation necessary to sustain a conviction under Section 276CC. Thus while this Court agrees with the Revenue s contention that the mere setting aside of penalty under Section 271(1)(b) by itself does not automatically nullify the criminal prosecution under Section 276CC the peculiar facts and circumstances of the present case particularly the Respondent s demonstrated efforts and the CIT(A) s findings tilt the balance in favour of the Respondent. In these circumstances the acquittal recorded by the Appellate Court though based on an erroneous legal premise ultimately deserves to be upheld on the distinct ground of absence of wilful default.

Summary

ISSUES:

Whether prosecution under Section 276CC of the Income Tax Act, 1961 can be sustained independently of penalty proceedings under Section 271(1)(b) when the latter are quashed.Whether failure to file income tax returns in response to a notice under Section 153A of the Act constitutes a wilful default attracting criminal liability under Section 276CC.What is the legal significance of the element of "wilfulness" or mens rea in prosecution under Section 276CC.Whether findings recorded in penalty proceedings under Section 271(1)(b) regarding non-wilfulness are relevant and binding in criminal prosecution under Section 276CC.The effect of statutory presumption under Section 278E of the Act on the burden of proof regarding wilful default.

RULINGS / HOLDINGS:

The prosecution under Section 276CC for failure to file returns pursuant to a notice under Section 153A is a distinct and independent cause of action from penalty proceedings under Section 271(1)(b) for non-compliance with notices under Section 142(1), and "the mere setting aside of penalty under Section 271(1)(b) does not, by itself, vitiate the prosecution under Section 276CC."Section 276CC criminalizes only a "wilful" failure to furnish returns, and "mens rea is an essential ingredient for establishing culpability" under this provision.The statutory presumption under Section 278E shifts the burden to the accused to prove beyond reasonable doubt that the failure to file returns was not wilful.Findings recorded by the appellate authority in penalty proceedings that the default was not wilful and arose from circumstances beyond the assessee's control are relevant and, when established beyond reasonable doubt, rebut the statutory presumption of wilfulness under Section 278E.In the present case, the acquittal based on absence of wilful default is upheld despite the appellate court's erroneous reliance on quashing of penalty proceedings, as the Respondent's failure to file returns was not deliberate but due to genuine difficulties and was ultimately followed by belated compliance.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly Sections 153A, 142(1), 271(1)(b), 276CC, and 278E.The Court distinguished the Supreme Court precedent in K.C. Builders, which dealt with prosecution under Section 276C linked to penalty under Section 271(1)(c), holding that it is inapplicable where prosecution under Section 276CC and penalty under Section 271(1)(b) arise from separate statutory defaults.The Court relied on the Supreme Court's decision in Vinubhai Mohanlal Dobaria emphasizing the mandatory nature of filing returns within prescribed time and that subsequent compliance does not erase the offence.The Court referred to authoritative interpretations of "wilful" failure in Sasi Enterprises and Gujarat Travancore Agency, underscoring the necessity of mens rea for conviction under Section 276CC.The Court acknowledged the reverse burden provision under Section 278E, requiring the accused to disprove wilfulness beyond reasonable doubt once prosecution establishes failure to file returns.The Court gave weight to the factual findings of the Commissioner of Income Tax (Appeals) that the Respondent's non-compliance was not deliberate but due to exceptional circumstances and genuine attempts to comply, thereby rebutting the presumption of wilfulness.The Court concluded that while the appellate court erred in equating quashing of penalty proceedings with invalidation of prosecution, the acquittal is justified on the distinct ground of absence of wilful default.