Safiya Malik

The Karnataka High Court, Kalaburagi Bench has dismissed petitions seeking to quash criminal proceedings initiated against an assessee for alleged willful failure to file income tax returns on time. The petitions were filed under Section 482 of the Code of Criminal Procedure, 1973, challenging prosecution under Section 276CC of the Income Tax Act, 1961. The court held that the presumption under Section 278E of the Act applies, placing the burden on the petitioner to rebut allegations of willful default. The court ruled that merely paying penalties for delayed returns does not exempt an assessee from prosecution under the Act.

The petitioner, Rajkumar Agarwal, a proprietor engaged in business, challenged the criminal proceedings pending before the II Additional Civil Judge and JMFC-II, Bidar, in multiple cases (C.C. Nos. 2056/2019, 2334/2019, 2333/2019, and 2332/2019). The Income Tax Department initiated the prosecution, alleging that the petitioner failed to file income tax returns in time for the Assessment Years 2012-13 to 2015-16, despite receiving statutory notices.

The petitioner contended that he had subsequently filed his income tax returns and had paid the penalties imposed for the delay. He argued that the Income Tax Department should not have pursued criminal proceedings, as the penalties had already been settled. Furthermore, the petitioner claimed that he was not provided an opportunity to be heard before the Principal Commissioner of Income Tax issued the sanction order for prosecution.

The Income Tax Department, represented by its counsel, opposed the petitions, arguing that the petitioner had failed to file returns on time despite multiple notices. The Department emphasized that merely submitting delayed returns and paying penalties does not exonerate an assessee from criminal liability under Section 276CC. The Department further argued that under Section 278E, a presumption of willful default exists, and the burden of rebutting this presumption lies on the accused.

The Karnataka High Court analyzed the applicability of Sections 276CC and 278E of the Income Tax Act, 1961. It observed that the offence under Section 276CC is attracted when an assessee fails to comply with Section 139(1), Section 142(1), or Section 148 of the Act. The court recorded: "The offence under Section 276CC is attracted on failure to comply with the provisions of Section 139(1) or failure to respond to the notice issued under Section 142 or Section 148 of the Act, within the time specified therein."

The court further examined Section 278E, which establishes a presumption against the accused in tax-related prosecutions. The provision states: "In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution."

Referring to Supreme Court precedents, the court noted that the burden to disprove willful default lies with the accused: "Court in a prosecution of offence, like Section 276CC, has to presume the existence of mens rea, and it is for the accused to prove the contrary and that too beyond reasonable doubt."

The court also distinguished the present case from C.P. Yogeshwara v. Income Tax Department, where proceedings were quashed because the returns had been filed before the sanction order was issued. It stated: "In the case of C.P. Yogeshwara, the court had not taken into account the presumption under Section 278E, and therefore, that judgment cannot assist the petitioner."

On the issue of penalty payment, the court observed that the Income Tax Act provides for both penalties and prosecution, stating: "Delay in filing of the income tax returns would not only result in payment of penalty, but it also results in prosecution as provided under Chapter 22 of the Act."

The court concluded that the Principal Commissioner of Income Tax had followed due process by issuing a show cause notice and passing a speaking order before sanctioning prosecution. It held that the petitioner was provided an opportunity to respond, and therefore, the contention that he was not heard was without merit.

The Karnataka High Court issued the following orders:

1. The criminal petitions were dismissed, affirming that the prosecution under Section 276CC would proceed.

2. The petitioner was granted the liberty to present his defense before the trial court and rebut the presumption under Section 278E.

3. The court ruled that mere payment of penalties does not exempt the petitioner from prosecution, clarifying that penalties and criminal proceedings are separate under the Income Tax Act.

4. The court rejected the contention that the sanction order was issued without providing the petitioner an opportunity to be heard.

Case Title: Rajkumar Agarwal v. Income Tax Department
Case Number: CRL.P No. 201214 of 2023 (with connected petitions)
Bench: Justice S. Vishwajith Shetty

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