2020 (4) TMI 760 - HC - Income Tax

Failure to furnish returns of income - offences punishable under Section 276C - non-filing of Income Tax returns in terms of Sections 139(1) 142(1) or 153 of Act - sanction order being passed with prior approval for the Chief Commissioner of Income Tax - HELD THAT - The satisfaction would be dependent on the approval of the Chief Commissioner of Income Tax is that only if the Chief Commissioner of Income Tax accorded approval for prosecution than the satisfaction of the Commissioner of Income Tax could be considered and acted upon by sanctioning prosecution. However if the Chief Commissioner of Income Tax were to refuse permission then the Commissioner of Income Tax though satisfied could not initiate any proceedings due to the non approval by the Chief Commissioner of Income Tax. Contention of Sri Kiran Javali that the prosecution has been initiated and sanction order came to be passed on 12.03.2014 being influenced by the Chief Commissioner of Income Tax though may not be entirely correct but however does merit consideration since no sanction could be given and prosecution initiated if the Chief Commissioner of Income Tax refused permission the order dated 12.03.2014 can therefore be said to be an order of the Chief Commissioner of Income Tax rather than the Commissioner of Income Tax. The Chief Commissioner of Income Tax is not the sanctioning authority. Even the approval dated 10.02.2014 does not indicate any application of mind by the Chief Commissioner of Income Tax nor is it signed by the Chief Commissioner of Income Tax. Hence even if it were to be assumed that Chief Commissioner of Income Tax was the sanctioning authority there is no subjective satisfaction by the Chief Commissioner of Income Tax for granting such sanction. Process and procedure and methodology followed by the Commissioner of Income Tax being not that as contemplated under Section 279 - The sanction order being passed with prior approval for the Chief Commissioner of Income Tax the same is not tenable in law and the entire proceedings initiated thereafter including those in C.C.No.219/2014 cannot be countenanced in law. Therefore the sanction letter dated 12.03.2014 and the proceedings in C.C.No.219/2014 pending on the file of the JMFC III Belagavi are hereby quashed.

Summary

Issues:
Quashing of order taking cognizance and initiation of proceedings under Section 276CC of the Income Tax Act, 1961 based on the sanction order obtained from the Chief Commissioner of Income Tax.

Analysis:
The petitioner sought quashing of the order taking cognizance and initiation of proceedings under Section 276CC of the Income Tax Act, 1961. The respondent Income Tax Department filed a complaint alleging non-filing of income tax returns by the petitioner, a partnership firm, resulting in taxable income. The Department issued a show cause notice, and the Commissioner of Income Tax sanctioned the prosecution under Section 276CC. However, the sanction order mentioned obtaining approval from the Chief Commissioner of Income Tax, which the petitioner contested as unnecessary. The petitioner argued that the Commissioner of Income Tax is the sanctioning authority under Section 279 and does not require approval from a superior authority. The respondent contended that seeking prior approval was to safeguard the interests of the assessee. The Court examined the correspondence between the Commissioner and Chief Commissioner of Income Tax, noting that the approval sought was a formality. The Court considered whether the sanction order was influenced by the superior authority and if the procedure followed was lawful.

The Court observed that the sanctioning authority under Section 279 is the Commissioner of Income Tax, without a requirement to seek approval from the Chief Commissioner. If the Chief Commissioner refused permission, the Commissioner's satisfaction would be rendered ineffective. The Court found that the sanction order, influenced by seeking approval, was not in accordance with the law. The approval did not reflect subjective satisfaction or bear the Chief Commissioner's signature. Consequently, the sanction order and proceedings initiated were deemed invalid. The Court quashed the sanction letter and the pending proceedings.

The respondent sought liberty to initiate fresh proceedings, which the Court deemed unnecessary due to no limitation period. The Court disposed of the petition, allowing the respondent to initiate proceedings as per the law.