Source: http://aiftponline.org/journal/2018/june-2018/constitutional-remedies-under-income-tax-law-with-special-reference-to-prosecution-recovery-proceedings/
Timestamp: 2019-04-24 03:20:45+00:00

Document:
State of West Bengal vs. Anwar Ali Sarkar AIR 1952 SC 75. PRELIMINARY: Of late there have been demand for increased public scrutiny of accounts , inspite of statutory audit . Enron and other cases abroad , Satyam case in India have highlighted the need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong-doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. A chartered accountant is a financial investigator and prober, is required to be curious tenacious and well-conversant to identify and unearth frauds, misreporting and wrong claims in accounts.
“4.4 Cases not to be compounded: Notwithstanding anything contained in the guidelines the following cases should normally not be compounded …(f) Where conviction order has been passed by a court. 7.2 Notwithstanding anything contained in the guidelines, the Finance Minister may grant approval for compounding of an offence in a suitable and deserving case, after obtaining report from the board on the petition of the applicant”.
In Government of India Department of Revenue v. Mrs. Inbavalli 2018 400 ITR 352 (Mad). The court exercised writ jurisdiction in a petition to hold that the power of compounding is exercisable even when an appeal against conviction is pending. In this case the assessee an old women of 70 years had not filed return of income of her electrical business. Pursuant a survey u/s. 133A she filed returns. A very huge demand of about ₹ 1.34 crores was raised for the three years which at the stage of the High Court in tax appeals filed u/s. 260 A was pegged along with interest at ₹ 14.85 lakhs which the assessee paid and there was no demands outstanding. In the meantime revenue initiated prosecution proceedings and after trial the Metropolitan Magistrate Court convicted and sentenced the assessee u/s. 276 CC of the IT Act to undergo imprisonment. The assessee preferred appeals u/s. 374(3) of the Code of Criminal Procedure 1973 before sessions Judge , City Civil Court who suspended the sentence of imprisonment and the said matter was pending . The assessee filed a compounding petition which was not entertained on the ground of parameters laid down in guidelines. It has been held in ITO v. Dr. K. Jagadeesan 202 257 ITR 476 (Mad), Chairman CBDT v. Smt. Umayal Ramanathan 2009 313 ITR 59 (Mad.) and V. G. Paneerdas and Company v. Secretary CBDT 2013 352 ITR 77 Mad department can consider compounding applications even after conviction by Trial Court. It was further held that if an appeal is pending against the order of lower court convicting the asseessee, the proceedings are deemed to be pending and hence compounding application can be considered on merits. It may be noted that department has not filed an SLP against the above decision.
AO had passed a reassessment order after complying the procedure u/s. 147-148 of the IT Act. The assessee filed a writ petition challenging the entire proceedings for reassessment. This was based on the fact that certain entries made in loose papers had no evidentiary value and therefore the assessment was based on inadmissible evidence. In this connection reference is made to Common Cause vs. Union of India 2017 394 ITR 220 (SC) where the dispute was with regard to registration of FIR against high Constitutional authorities based on entries made on loose paper seized at the time of search and seizure. It was held that entries in loose papers are not sufficient evidence for directing registration for FIR and inquiry under criminal justice system. In Neeraj Mandoli v. ACIT 2017 399 ITR 287 (MP) it was held that the assessee had challenged the order of assessment in writ petition. When the assessment was already over, there was right to statutory appeal which was available and therefore writ was not appropriate remedy. It was pointed out that the Court cannot go in to various aspects of matters already dealt with in assessment order, for which statutory remedy of appeal was available. The Supreme Court in CIT v. Chabil Dass Agarwal 2013 357 ITR 357 and CIT v. Vijay N. Chandrani 2013 357 ITR 713 (SC) laid down the principle when statutory forum are created for redressal of grievance, writ petition should not be entertained ignoring such statutory dispensation. Similar view was also taken in Joint CIT v. Kalanithi Maran 2014 366 ITR 453 (Mad).
However where assessment is sought to be reopened u/s. 148 and the objections filed have been overruled by the AO, then in such a case the AO will not proceed in the matter for a period of 4 weeks from the date of receipt of the order rejecting the objections so as to enable the assessee to challenge order in accordance with law. This principle of law was laid down in Asian Paints v. DCIT 2008 296 ITR 90 (Bom) and Aroni Commercials v. DCIT 2014 362 ITR 403 (Bom). If the AO has passed order in haste then a writ would lie even though on the assessment order an appeal by way of alternate statutory remedy is available u/s. 246 A.
Where reassessment was made solely on the basis of valuation report it was held in Kamala Ojha v. ITO 2017 397 ITR 197(Chhattisgarh) that the reopening based on valuation report is not valid as a valuation report in only a opinion of a valuer. It was held that the report or information of a valuer cannot substitute the words “reason to believe”of the ITO. An opinion of a third person cannot be “reason to believe” of the ITO and writ of prohibition was issued to the ITO from proceeding to reassessee the income based on valuation report. The Court held that relying upon valuation report without application of mind is per seillegal and without authority of law relying upon ACIT Dhariya Construction Company 2010 328 ITR 515(SC).
2) Penalty Dropped : In KC Builders vs. ACIT 2004 265 ITR 562 (SC) it was held that where penalty is dropped, prosecution of an offence u/s. 276C for wilful evasion of tax cannot be proceeded with. The Bombay High Court held that where penalty is cancelled by Tribunal prosecution proceedings are also quashed: Shashi Chand Jain v. UOI 1995 213 ITR 184 (Bom) where the finding in penalty proceedings was that assessee had a genuine belief that tenancy right was not an asset for the purpose of wealth-tax and that there was no wilful attempt to evade tax or false verification in such a case prosecution was not valid. The challenge in this case was byway of writ certiorari for quashing or setting aside criminal complaint filed against the petitioner and a writ mandamus to withdraw/forbear from taking any steps in pursuance of criminal complaint filed against the petitioner. It may further be noted that where substantial question of law is admitted by HC in quantum appeal then no penalty for concealment can arise: CIT v. Nayan Builders 368 ITR 722 (Bom), CIT v. Harsha Bilinagady 379 ITR 529 (Karn) thus the implication could be that in such a case prosecution cannot lie: ITO v. Nandalal 341 ITR 646 (Bom). A criminal revision application was filed to quash and set aside the judgment of additional sessions judge on the ground that proceedings on a complaint filed by the ITO u/s. 276 C and 277 of the IT Act on the ground that Tribunal had set aside the penalty u/s. 271(1)(c). The Court held that when penalty has set aside by the Tribunal the finding becomes conclusive and prosecution was not sustainable.
₹ 2500/- in another case for another assessment year. The assessee was also convicted and both sentences were ordered to run concurrently. The appeal filed was dismissed by the sessions judge. A revision petition was filed where the Court in Satwant Singh Mehta v. ITO 217 397 ITR 45 (P&H) held that since the assessee was already undergoing sentence and both sentences were to run concurrently, the sentence imposed in the present case was reduced to the sentence already undergone by him and the fine was imposed in default of which sentence to continue. The Court ordered that the assessee be set at liberty if his custody was not required in connection with any other case, subject to payment of fine.
6) Section 278AA & Section 278E: By virtue of amendment by Taxation Laws (Amendment Misc. Provisions) Act 1986 sections where the word “without reasonable cause or excuse” have been omitted and deleted and with the insertion of section 278AA, the onus of proving the existence of reasonable cause is shifted on the accused. Section 278E provides that in every prosecution the court shall presume culpable mental state and it is for the accused to prove contrary beyond reasonable doubt. The entire concept in criminal jurisprudence of “mens rea” has undergone change and burden of proof is shifted to the assessee. This presumption is rebuttable but the burden is cast heavily upon the assessee to prove absence of culpability not by mere preponderance of probability but to prove that the charge against him is unsustainable beyond reasonable doubt. Thus the initial burden lies on the assessee sections 275A to section 280 D of the Act deals with offences and prosecution in chapter XXII.
“It is true that Instruction No.4(B)(b) of the Circular dated 29-2-2016, gives two instances where less than 15 per cent can be asked to be deposited. However, it is equally true that the factors, which were directed to be kept in mind both by the Assessing Officer, and by the higher superior authority, contained in Instruction No. 2B(iii) of Circular No.1914, still continue to exist. For, as noted above, the said part of Circular No.1914 has been left untouched by the Circular dated 29-2-2016. Therefore, while dealing with an application filed by an assessee, both the Assessing Officer, and the Principal Commissioner, are required to see if the assessee’s case would fall under Instruction No. 2B(iii) of Circular No.1914, or not. Both the Assessing Officer, and the Principal Commissioner, are required to examine whether the assessment is “unreasonably high pitched”, or whether the demand for depositing 15 per cent of the disputed demand amount “would lead to a genuine hardship being caused to the assessee” or not”.
If you can lay down your life for a cause, then only you can be a leader. But we all want to be leaders without making the necessary sacrifice. And the result is zero – nobody listens to us!

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