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Supreme Court Observes That the Creation of an Offence by Statute Leads Society to Suffer Injury

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The petition was filed under Section 482 of the Code of Criminal Procedure to quashing the complaint filed by the Office of the Assistant Commissioner of Income Tax, Surat, which resulted in Criminal Case No. 23693 of 2019 pending before the Court against the petitioners for violating Section 276C(2) and Section 278E of the Income Tax Act.



The petitioners claim to be independent and non-executive directors of Sumeet Industries Limited. They joined the company on June 28, 2014, February 13, 2017, and April 11, 2017, respectively. The petitioners claim that they have no participation in the Company’s day-to-day operations and have resigned on the 30th of November, the 19th of November, and the 3rd of November, 2018 respectively. 

The petitioners claim that since they resigned from the Company, they are unaware of how it operates. They claim that the Company (accused No.1) had a tax liability of Rs. 13,90,27,650/- out of R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021, of which Rs. 11,12,00,439/- had already been paid before the filing of the complaint. The petitioners claim that a total sum of Rs. 11,12,00,439/- had been recovered with respondent No. 2 previous to the filing of the impugned complaint.

The Petitioners claim that the accused Company paid the remaining tax amount following the filing of the complaint. The Company directly deposited a portion of the funds, while the GST Department deposited the remainder, demonstrating that any delay was caused by the GST Department, not the accused Company.



Learned advocate for the petitioners submitted that the petitioners are appointed as independent Directors. Returns of the incomes for the Assessment Year 2016-17 and 2017-18 have been filed based on self-assessment. He said on the record that he had paid 80% of the tax amount previous to the complaint. In their reply to the Notice, the petitioners stated the reasons for the delay in paying taxes, and the remaining sum was paid after the complaint was filed. As a result, he claimed that there had been no deliberate attempt to avoid paying taxes. It was argued that even if the Assessee deposits a portion of the tax due after receiving the Notice with a request for an extension of time to pay the balance, the assessee’s deliberate attempt to evade payment of tax under Section 276C could not be regarded to have occurred. The petitioners have explained why there has been a delay, and no ill-intent has been shown to warrant a prosecution under Section 276C of the Internal Revenue Code. Mr. Pahwa went on to say that a criminal investigation should not be launched based on a question of interpretation of the Income Tax Act.



The respondent’s learned advocate argued that the petitioners’ documentary evidence shows that petitioner No. 1 does not fall into the category of independent director. Due taxes must be paid before returns can be filed, according to Section 140A’s intent. There was no jurisdictional error in submitting the complaint under Section 276C of the Income Tax Act, according to the argument. It was also argued that taxes were not paid on time, and hence prosecution against the petitioners could be prosecuted. He claimed that the allegation of tax avoidance was based on solid evidence. According to the Department’s response to the notice, there is no averment that the petitioners are not in charge of the Company’s day-to-day operations, thus the petitioners as partners in the Assessee Firm are equally accountable for the Firm’s acts and omissions.



The Income Tax Department did not accept the accused’s argument since Section 140A(1) of the Act states that any tax due based on a return filed under Section 139 must be paid by the assessee on or before filing the Return of Income and if any assessee fails to pay the whole or any part of such tax following the provisions of sub-section (1), he shall be deemed to be an assessee in default in respect of any tax that remains unpaid, and all of the provisions of this Act shall apply accordingly, without prejudice to any other consequences that he may face. The accused breached Section 140A of the Income Tax Act by failing to comply with the Act’s requirements, and therefore became an assessee in default for non-payment of tax and other obligations, and thus failed to comply with the statutory provision. The accused have also refused to pay their taxes to the government. Non-payment of the outstanding accepted tax amount of Rs.13,90,27,650/- at the time of submitting the Return of Income demonstrates a clear culpable mental state within the meaning of Section 276C(2) read with Section 278E of the Act, and hence all the accused are needed to be punished under Section 276C(2) of the act. As per the prosecution, the circumstances have led to the launching of prosecution in violation of Section 140A of the Income Tax Act. The prosecution initiated against the petitioners is illegal and tantamount to abuse of process of law and required to be quashed. 



The request has been granted. The Office of the Assistant Commissioner of Income Tax, Surat filed a complaint against the petitioners in Criminal Case No. 23693 of 2019, which is currently pending before the Court of learned Chief Judicial Magistrate, Surat, for the offense punishable under Section 276C(2) read with Section 278E of the Income Tax Act as well as the order issuing summons, dated 13.6.2019, is quashed and set aside. The rule has been declared absolute.


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