Ganga Devi Somani vs State Of Gujarat
2021 Latest Caselaw 7774 Guj

     R/CR.MA/22512/2019                           JUDGMENT DATED: 06/07/2021



              IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               R/CRIMINAL MISC.APPLICATION NO. 22512 of 2019


FOR APPROVAL AND SIGNATURE:


HONOURABLE MS. JUSTICE GITA GOPI

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1      Whether Reporters of Local Papers may be allowed               Yes
       to see the judgment ?

2      To be referred to the Reporter or not ?                        Yes

3      Whether their Lordships wish to see the fair copy                -
       of the judgment ?

4      Whether this case involves a substantial question                -
       of law as to the interpretation of the Constitution
       of India or any order made thereunder ?

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                            GANGA DEVI SOMANI
                                  Versus
                            STATE OF GUJARAT
==========================================================
Appearance:
MR. NAVIN PAHWA, SR. ADVOCATE WITH MR.NANDISH H
THACKAR(7008) for the Applicant(s) No. 1,2,3
MR. MANISH BHATT, SR. ADVOCATE WITH MRS MAUNA M BHATT(174)
for the Respondent(s) No. 2
MS. MONALI BHATT, ADDITIONAL PUBLIC PROSECUTOR(2) for the
Respondent(s) No. 1
==========================================================

     CORAM:HONOURABLE MS. JUSTICE GITA GOPI

                              Date : 06/07/2021

                             ORAL JUDGMENT

1. Rule. Ms. Monali Bhatt, learned Additional Public Prosecutor

and Mr. Manish Bhatt, learned Senior Counsel with Ms. Mauna Bhatt,

learned advocate, waive service of notice of rule on behalf of

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respondents Nos.1 & 2 respectively.

2. This petition has been filed under section 482 of the Code of

Criminal Procedure for quashing the complaint made by the Office of

the Assistant Commissioner of Income Tax, Surat which has

culminated into Criminal Case No. 23693 of 2019 pending before the

Court of learned Chief Judicial Magistrate, Surat against the

petitioners for the offence punishable under Section 276C(2) read

with Section 278E of Income Tax Act, as well as the order issuing

summons dated 13.6.2019.

3. It is contended by the petitioners that they are independent and

non-executive Directors of the Company named Sumeet Industries

Limited. They had joined the Company on 28.6.2014, 13.2.2017 and

11.4.2017 respectively. It is submitted by the petitioners that they

have no role to play in the day to day affairs of the Company and they

have tendered their resignation on 30.11.2018, 19.11.2018 and

3.11.2018 respectively, the said resignation is also reflected in Form

DIR-12 maintained with the Ministry of Corporate Affairs.

3.1 The petitioners state that since they have resigned from the

Company, are not aware about the functioning of the Company but

from the information gathered from the sources and averment made

in the complaint, it is stated by the Petitioners that the Company-

accused No.1 was having the Tax liability of Rs. 13,90,27,650/- out of

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

which prior to the filing of the complaint, Rs. 11,12,00,439/- was

already paid. The accused- Company has responded to the show-cause

Notice dated 25.1.2019, the Company had informed Respondent No.2

of having already paid Rs.7,28,45,394/- and further Rs. 3,83,55,045/-

was due from the GST Department as refund on export for which the

Respondent No.2 had already issued a notice to the GST Department

for remitting the said refund directly in the account of the Income Tax

Department. On the same line, with similar request, the accused

Company had written a letter to the GST Department making similar

request to GST Department for transferring the said refund directly

into the Account of the Income Tax Department. Thus, it is stated by

the petitioners that already total amount of Rs. 11,12,00,439/- was

secured with the respondent No.2 prior to filing of the impugned

complaint.

3.2 It is urged by the Petitioners that the accused Company has

after the complaint paid the remaining tax amount. Certain amount

was directly deposited by the Company and the remaining amount

was deposited by the GST Department which clearly shows that the

delay, if any, was attributable to the GST Department and not to the

accused Company.

3.3 The petitioners state that they have resigned way back in the

month of November, 2018 and the Certificate of the Chartered

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Accountant dated 19.11.2019 along with necessary documents shows

that the entire tax liability had been paid by the accused Company.

Therefore, the petitioners are constrained to approach this Court by

way petition under Section 482 of Cr.P.C. for quashing of the

impugned proceedings, pending before the Court of learned Chief

Judicial Magistrate, Surat.

4. Mr. Navin Pahwa, learned Senior Counsel along with Mr. Nandish

Thacker, 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 on the basis of self-assessment. The show-cause notice given by

the department was replied on 27.3.2019, given details of the taxes

are paid and for the balance due from the GST Department as GST

refund on export, the Income Tax Department had issued Notice to

GST for remitting refund. Mr. Pahwa, placing reliance on the

certificate by the Chartered Accountant stated that for the

Assessment Year 2017-18, the Company M/s. Sumeet Industries

Limited had made the payment of Rs. 13,90,27,650/- in respect of self-

assessment tax under the Income Tax Act, 1961. Mr. Pahwa stated

that Notice by the department was for the Assessment Year 2016-17

and Assessment Year 2017-18 but the complaint is filed only for the

Assessment Year 2017-18. Self-assessment has been accepted by the

department. As per the record, he stated that 80% of the tax amount

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was paid prior to the complaint. The petitioners explained the

circumstances of delay in the payment of taxes in the reply towards

Notice and after the filing of the complaint, remaining amount were

also paid. Thus, he stated that there was no wilful attempt to evade

payment of tax.

4.1 Mr. Pahwa further submitted that, even if the Assessee deposits

part of tax due subsequent to Notice with a prayer for extension of

time for the balance amount to be paid then too it could not be said

that there is any wilful attempt on the part of the assessee under

Section 276C to evade payment of tax and, therefore, that fact was

required to be considered by the department prior to the launching of

prosecution. Even in case where assessee deposits/ paid self-

assessment tax dues belatedly, after steps taken by the department,

there cannot be inference that there was a wilful attempt on the part

of the assessee to delay payment in terms of Section 276C. Mr. Pahwa

submitted that 'wilful failure' brings into consideration the element of

guilty mind. He stated that in the facts of the matter there was no

wilful evasion. The petitioners have explained the delay and no ill-

motive could be found out to have a prosecution under Section 276C

of Income Tax Act. Mr. Pahwa further stated that the criminal

prosecution must not be initiated as a matter of course where the

prosecution would invoke question of interpretation of Income Tax

Act and that the department should be slow in filing prosecution

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

without any determination by the Income Tax Officer of the liability of

the accused assessee which is made the basis of prosecution.

4.2 Mr. Pahwa, learned Senior Counsel for the petitioners has relied

on the decisions in cases of (i) Sushil Kumar Saboo v. State of Bihar,

reported in [2011] 336 ITR 202 (Patna); (ii) Vyalikaval House Building Co-

operative Society Ltd. v. Income Tax Department, Central Circle-1(1),

Bangalore, reported in [2019] 267 Taxman 81 (Karnataka); (iii) Income-

Tax Officer v. Autofil and Others, reported in (1990) 184 ITR 47 and

(iv)Gopalji Shaw v. Income-Tax Officer, "D" Ward, Disctrict IV(I), Calcutta

and others, reported in (1988) 173 ITR 554.

5. Mr. Manish Bhatt, learned Senior Counsel with Ms. Mauna Bhatt,

learned advocate for the respondent submitted that the documentary

evidence as produced by the petitioners show that the petitioner No.1

is not in a category of independent Director. As per the object of

Section 140A, due taxes is required to be paid prior to filing of returns.

Whether attempt to evade payment of taxes, would be attributable to

the petitioners, would be a question of facts which would be decided

only during trial and further what would be the effect of the

subsequent payment, is for the parties to prove. Mr. Manish Bhatt

submitted that there is no jurisdictional error in filing the complaint

under Section 276C of the Income Tax Act. Mr. Bhatt submitted that

on the due date taxes were not paid and, therefore, prosecution is

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

maintainable against the petitioners.

6. Mr. Manish Bhatt, learned Senior Counsel has relied on decisions

in case of (i) Prakash Nath Khanna v. Commissioner of Income Tax,

reported in (2004) 266 ITR 1 (SC); (ii) Sasi Enterprises v. Assistant

Commissioner of Income Tax, reported in (2014) 361 ITR 163 (SC); (iii)

Samta Ravikant Manglani v. State of Gujarat, reported in (2016) 70

Taxmann.com 131 (Guj) and (iv) Deepak Engineering Works v.

Commissioner of Income Tax, reported in (2013) 352 ITR 161 (Patna)

to submit that every tax has to be paid in due time and there is no

condonation of such infraction, for the prosecution of offence under

the Income Tax Act. There is a presumption of culpable mental state in

accordance to Section 278E of the Income Tax Act. Absence of such

mental state can be pleaded by an accused as a defence in respect of

the act charged as an offence in the prosecution. He submitted that

the contention of tax evasion has been made on substantive evidence.

Referring to the reply to the notice by the Department, Mr. Bhatt

submitted that there is no averment to the effect that petitioners are

not incharge of day to day affairs of the Company, thus the petitioners

as partners of the Assessee Firm are equally responsible for the act

and omission of the said Firm.

7. The Income Tax Department states that the Company accused

No.1 M/s. Sumeet Industries Ltd. by the return of income declared the

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

total income to be Rs. 12,50,49,940/- and the said Income Tax Return

were signed by accused No.2 on 31.3.2018. The total tax payable has

been Rs. 13,90,27,650/- [Rs.14,12,32,322/- - 22,04,669/- (TDS and

TCS)]. It is contended that return of Income for the said Assessment

year was filed without paying self-asessment tax of Rs.13,90,27,650/-.

It is contended that it was legal and statutory duty of the accused to

pay full tax on or before 31.3.2018 and that it was well within the

knowledge of the accused, still however accused chose not to pay the

self-assessment tax by that date. Under that circumstances, show-

cause notice was issued to the accused on 25.1.2019 as to why

prosecution under Section 276C(2) of the Income Tax Act should not

be launched against the accused for Assessment Year 2017-18.

8. According to the Income Tax department in response to the

show-cause notice, the accused raised following contentions for not

paying self assessment tax, which are reproduced hereinbelow :-

(1) That accused could manage to pay the tax of

Rs.7,28,45,394/- and further Rs.3,83,55,045/- was due from the

GST Department as refund on export for which accused had

already filed refund application and Income Tax Department had

already issued a notice to GST Department for remitting the

refund due directly to Income Tax Department. Thus, accused

paid the amount of tax for Rs.11,12,00,439/-.

(2) That due to tough business situation in textile industry

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

since 2-3 years post demonetization and implementation of GST,

the textile industry had been facing huge financial crisis and

affected badly and even no recovery of payment. Moreover, due

to inverted duty structure of GST and thereby accumulation and

afterwards receivable under GST, these led to cash crunch.

(3) Financial crunch led to non-payment of installments and

even interest which resulted the accused back accounts

categorized as NPA and as such assistance from the banks had

stopped.

9. The Income Tax Department did not find the contention of the

accused acceptable on the ground that Section 140A(1) of the Act

stipulates that any tax payable on the basis of return u/s 139 shall be

liable to be paid by the assessee on or before furnishing Return of

Income, and if any assessee fails to pay the whole or any part of such

tax in accordance with the provisions of sub-section (1), he shall,

without prejudice to any other consequences which he may incur, be

deemed to be an assessee in default in respect of tax remaining

unpaid and all the provisions of this Act shall apply accordingly. It is

stated that if failure to deposit the self assessment tax by the accused

under Section 140A of the Act would not have been detected by

Income Tax Department, the accused would have left from

discharging tax liability. The accused having failed to comply with the

requirements of the Act, violated Section 140A of Income Tax Act,

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

1961 and became assessee in default for non-payment of tax etc. and

thereby the accused has failed to comply with the statutory provision.

The accused have also withheld the Government dues and this act on

the part of the accused caused circumstance which enabled the

accused to willfully evade the payment of tax though they had full

knowledge that such self-assessment tax was required to be paid on

or before filing of Return of Income. Non-payment of remaining

admitted tax liability of Rs.13,90,27,650/- at the time of filing of

Return of Income reflects the intention/ motive to evade the payment

of tax under clear culpable mental state within the meaning of Section

276C(2) read with Section 278E of the Act and therefore, all the

accused are required to be punished under Section 276C(2) of the Act.

10. Section 276C of the Income Tax Act is extracted hereinbelow:

"276C. Wiful attempt to evade tax, etc. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under reports his income, under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,--

(i) in a case where the amount sought to be evaded or tax on under-

reported income exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the court, also be liable to fine.

Explanation.--For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person--

(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

(ii) makes or causes to be made any false entry or statement in such books of account or other documents; or

(iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.

The prosecution under Section 276C (2) could be launched

where it is found that there was a wilful attempt in any manner to

evade the payment of any tax, penalty or interest under the Act.

11. As per the prosecution, the circumstances which has led to the

launching of prosecution is violation of Section 140A of the Income

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Tax Act and in default of non-payment of taxes, has not complied with

the statutory provision and the accused thereby has caused such

circumstances which enable the accused to evade payment of taxes

though they were in the knowledge that the self-assessment was

required to be paid on or before Return of Income.

12. What requires to be noticed herein is that the Notice was issued

for the Assessment Year 2016-17 and 2017-18 while the prosecution

has been launched for admitted tax liability of Rs.13,90,27,650/- for

the Assessment Year 2017-18. In reply to the show-cause notice for

launching of prosecution under Section 276C of the Income Tax Act,

Company had informed the Income Tax Department that they had file

the Return of Income for the Assessment Year 2016-17 by computing

tax payable at Rs. 7,87,39,870/- and that they have received order

under Section 139(9) of the Act dated 16.1.2019 with the

communication reference No. CPC/1617/G5/1800922674 wherein it

was mentioned that the return of income filed by the Company on

31.3.2018 vide acknowledgment No. 580767721310318 is treated as

invalid return and thus to that understanding the Company was in no

position to even file revised return as the date of filing revised return

for Assessment Year 2016-17 had elapsed, therefore, in such

circumstances there would be no outstanding demand for Assessment

Year 2016-17.

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The Income Tax Department has no issue with this explanation

of the assessee.

13. For the Assessment Year 2017-18, it is explained by the accused

- Company that the Company had filed return of income for AY 2017-

18 by computing tax payable at Rs.13,90,27,650/-. However, till date

the Company could manage to pay tax of Rs.7,28,45,394/- and further

a balance of Rs.3,83,55,045/- is due from the GST Department as GST

Refund on export for which the Company has already filed a refund

application to the GST Department. Further, the Income Tax

Department has already issued a notice to the GST department for

remitting the refund due to the Company directly to the Income Tax

Department, therefore, the total tax paid will sum upto Rs.

11,12,00,439/-.

14. In the said reply dated 27.3.2019, the Company had also

explained the adverse situation the Company was facing to run

business and save employment of more than 1000 workers at the

plant and according to the Company they had paid the outstanding tax

demand as and when possible and according to the calculated tax

amount, 80% of the tax demand had been paid in time and even in the

situation of market crisis, they had tried their level best to pay the

outstanding tax demand and showed their willingness to pay

remaining tax demand for the Assessment Year 2017-18 of

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Rs.2,78,27,211/- at the earliest.

15. Three of the case-authorities relied by learned Senior Counsel of

the Income Tax Department are on Section 276CC of the Income Tax

Act. Section 276CC of the Act refers as under:

"Section 276-CC: Failure to furnish returns of income: If a person wilfully fails to furnish in due time the return of income which he is required to furnish under sub-section (1) of Section 139 or by notice given under sub-section (2) of Section 139 or Section 148, he shall be punishable,-

(i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine:

Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of income under sub- section (1) of Section 139-

(i) for any assessment year commencing prior to the Ist day of April, 1975; or

(ii) for any assessment year commencing on or after the Ist day of April, 1975, if-

(a)the return is furnished by him before the expiry of the assessment year; or

(b)the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees".

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16. Section 276C is in context with wilful attempt to evade taxes etc

while Section 276CC is provided for the failure to furnish Return of

Income.

17. In Prakash Nath Khanna v. Commissioner of Income Tax (Supra),

the Hon'ble Apex Court, reading Section 276CC with Section 139 of

the Income Tax Act has explained significance of the term 'in due

time', used in Section 276CC, and in case of Sasi Enterprises v.

Assistant Commissioner of Income Tax (Supra), it has been laid down

that in a prosecution for offence like Section 276CC, the Court has to

presume existence of mens rea in terms of provision of Section 278E

and further laid down that it is for the accused to prove contrary and

that too beyond reasonable doubt. Such observation has been made in

relation to the failure to furnish Returns of Income.

18. Section 139 of the Act is provided for the Return of Income and

in case of Sasi Enterprises v. Assistant Commissioner of Income Tax

reported in (2014) 361 ITR 163 (SC), the Court formulated the

question of consideration, 'whether non-filing of the Return under

Section 139(1) of the Act, as well as non-compliance of the time

prescribed under Section 142 and 148 of the Act are grounds for

invocation of the provisions of Section 276CC of the Act.'

18.1 After reading Section 139 of the Act, the Apex Court laid down

in Para-19 as under:

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"19. A plain reading of the above provisions indicates that it is mandatory on the part of the assessee to file the return before the due date.

Explanation (a) to the said section defines the term "due date", which is 30th November of the assessment year. The consequence of non-filing of return on time has also been stipulated in the Act. Further a reference to Sections 142 and 148 is also necessary to properly understand the scope of Section 276CC."

18.2 Further, considering the application of Section 276CC to that of

Section 139 of the Act, in reference to Section 142 and 148, the Apex

Court has laid down in Paras-23 and 24 as under:

"23. Section 276CC applies to situations where an assessee has failed to file a return of income as required under Section 139 of the Act or in response to notices issued to the assessee under Section 142 or Section 148 of the Act. The proviso to Section 276CC gives some relief to genuine assesses. The proviso to Section 276CC gives further time till the end of the assessment year to furnish return to avoid prosecution. In other words, even though the due date would be 31st August of the assessment year as per Section 139(1) of the Act, an assessee gets further seven months' time to complete and file the return and such a return though belated, may not attract prosecution of the assessee. Similarly, the proviso in clause ii(b) to Section 276CC also provides that if the tax payable determined by regular assessment has reduced by advance tax paid and tax deducted at source does not exceed Rs.3,000/-, such an assessee shall not be prosecuted for not furnishing the return under Section 139(1) of the Act. Resultantly, the proviso under Section 276CC takes care of genuine assesses who either file the returns belatedly but within the end of the assessment year or those who have paid substantial amounts of their tax dues by pre-paid taxes, from the rigor of the prosecution under Section 276CC of the Act.

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24. Section 276CC, it may be noted, takes in sub-section (1) of Section 139, Section 142(1)(i) and Section 148. But, the proviso to Section 276CC takes in only sub-section (1) of Section 139 of the Act and the provisions of Section 142(1)(i) or 148 are conspicuously absent. Consequently, the benefit of proviso is available only to voluntary filing of return as required under Section 139(1) of the Act. In other words, the proviso would not apply after detection of the failure to file the return and after a notice under Section 142(1)(i) or 148 of the Act is issued calling for filing of the return of income. Proviso, therefore, envisages the filing of even belated return before the detection or discovery of the failure and issuance of notices under Section 142 or 148 of the Act.

18.3 Dealing with Section 278E, it has been laid down in Para-30 as

under:

"30. Section 278E deals with the presumption as to culpable mental state, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The question is on whom the burden lies, either on the prosecution or the assessee, under Section 278E to prove whether the assessee has or has not committed willful default in filing the returns. 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. Resultantly, the appellants have to prove the circumstances which prevented them from filing the returns as per Section 139(1) or in response to notices under Sections 142 and 148 of the Act.

Thus, the circumstances which led to the failure is to be

considered, proviso under Section 276CC takes care of genuine

assessee. Wilful failure to furnish returns of income draws the

presumption of culpable mental state.

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19. The judgment of Deepak Engineeing Works v. Commissioner of

Income Tax, (2012) 20 Taxmann.com 689 (Patna) cited by learned

Senior Counsel Mr. Bhatt for the Income Tax Department relates to

'wilful attempt to evade tax, etc.' while herein in the instant case, we

are dealing with a case where the Department alleges 'wilful attempts

to evade payment of tax, etc.'

20. The mechanism for enforcing tax compliances under the Income

Tax Act is provided by way of three pillars vis-a-vis imposition of

interests, imposition of penalties and prosecutions. Chapter-XXII of

the Act contains provision relating to prosecutions. Amongst other

provisions, Section 276C of the Act contains provision relating to

prosecution against 'wilful attempts to evade any tax, penalty or

interest chargeable or imposable, or under-reporting of income or to

evade payment of such tax, penalty or interest'. Bare reading of

Section 276C of the Act shows that the said provision is divided into

two parts. Subsection (1) deals with wilful attempts to evade tax,

penalty or interest 'chargeable' or 'imposable', or 'under reporting of

income', whereas sub-section (2) deals with 'wilful attempt' to 'evade'

'payment' of tax, penalty or interest. Thus, both the sub-sections deal

with two kinds of offences committed at two different points in time

by an assessee. Sub-section (1) lays the emphasis on evasion of tax,

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penalty or interest, etc. before charging or imposition or under-

reporting of income. In other words, all the acts done by assessee

whereby the income is not offered to tax either due to falsification of

books of account or non-reporting of income or under reporting of

income, etc would be punishable under Section 276C(1) of the Act.

While provisions under Section 276C(2) would operate when payment

of tax, penalty or interest is due and attempt is made to evade such

payment.

21. The basic difference between applicability of sub-section (1) and

(2) is the stage at which the offence is committed. If an offence is

committed before the stage of filing of return of income, it shall be

covered by sub-section (1). Any offence committed on or after the

stage of filing of return of income will be covered by sub-section (2). It

may in certain circumstances appears to be overlapping between the

applicability of sub-section (1) and sub-section (2).

22. Under both the sub-sections of Section 276C, the first

requirement is that the attempt to evade should be 'wilful'. This term

'wilful' has not be defined under the Act. Under common parlance the

word 'wilful' suggest guilty mind of the assessee which means the

assessee has consciously or knowingly attempted to thwart the

chargeability of tax, interest or penalty. Such wilful attempt further

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should be to 'evade' chargeability or imposition of payment of taxes,

etc. The work 'evade' has not been defined under the Act. As per

K.J.Aiyar's Judicial Dictionary the word 'evade' is capable of being

used in two senses, one which suggests underhand dealing, and

another which means nothing more than intentional avoidance of

something disagreeable.' [Lord Hobhouse in [1900] AC 323]. As per

Taxmann's Direct Tax Manual, Volume-3, the word 'evade' occurring in

section 276C will take in non-disclosure as well, depending upon the

facts and the mens rea of the petitioner. [K.A. Khaja v. Sixth ITO (1992)

196 ITR 627 (Mad)].

22.1 What the law requires is the intention to evade payment of

taxes then it is not mere failure to pay the tax but must be something

more. The assessee must be aware that the tax was leviable and such

assessee deliberately avoids paying it. The word 'evade' in the context

means defeating the provisions of law of paying tax.

22.2 The word 'wilfulness' certainly brings in element of guilt and

thus the requirement of mens rea. The explanation appended to the

provision provides an illustrative list of cases which can be covered

under the said term. Nothing therein has been mentioned to suggest

as to what situation can be termed as 'evasion' of payment of tax,

interest or penalty.

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22.3 The Supreme Court in Gujarat Travancore Agency v. CIT, 1989 AIR

1671, has observed that the creation of an offence by Statute

proceeds on the assumption that society suffers injury by and the act

or omission of the defaulter and that a deterrent must be imposed to

dis- courage the repetition of the offence. It also observes that in

most cases of criminal liability, the intention of the Legislature is that

the penalty should serve as a deterrent.

22.4 In a criminal case, the accused is not required to establish his

defence rather onus is on the prosecution to prove the guilt of the

accused, Mens rea is an essential ingredients of criminal offence. It

has been laid down in Gopalji Shaw v. Income Tax Officer, 1998 SCC

Online Cal 341, "The object of launching criminal prosecution for wilful

default in complying with the provisions of the Income Tax Act is to

prevent evasion of tax. But in each and every case, without looking

into gravity of the offence and without considering the attending

circumstances, no prosecution should be launched. Unless there is

wilful default in filing the return, no prosecution can be launched".

Here in this case, the tax demand of the department has been

paid by the company. In the reply given to the Income Tax Department

to the notice of demand, the Company has stated that they have

already paid 80% of the tax demand and addressing the crisis situation

of the market, the Company assured the payment of remaining tax

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

demand for the Assessment Year 2017-18 of Rs. 2,78,27,211/- at the

earliest. It has been submitted at bar by the learned advocate for the

petitioners that all the due amount has been paid to the department.

The prosecution has been launched for the non-payment of the tax of

Rs. 13,90,27,650/- on the Return of Income. To that the Company had

contended in the Reply that for the Assessment Year 2017-18 for

computing tax payable at Rs.13,90,27,650/-, they could manage to pay

Rs.7,28,45,394/- and further balance of Rs.3,83,55,045/- was stated to

be due by the Company from the GST Department as GST Refund on

export, which according to the Company, the Income Tax Department

had issued notice to the GST Department for remitting the refund

due.

23. Here, from the facts of the case it appears that Company had

voluntarily declared its intention to pay tax and 80% of the tax was

paid prior to the complaint. The Income Tax Department was

instructed regarding the dues from the GST Department and there is

no denial to the fact that the Income Tax Department had issued

Notice to GST Department for remitting the refund directly to their

Department. Certain tough circumstances were also pleaded by the

Company regarding demonetisation and implementation of GST, the

Textile Industry facing huge financial crisis, which had affected the

recovery of tax liability determined by the accused Company of

Rs.13,90,27,650/- was not controverted by the Income Tax

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

Department and to that payable tax, as per the self-assessed Return

of income, the Company had already paid Rs.7,28, 45,394/- and further

amount of Rs.3,83,55,045/- was to be directly paid by the GST

Department and as such amount of Rs. 11,12,00,439/- was to be

adjusted against GST refund which constitute the 80% of the total tax

liability. The accused Company has stated the reasons for the delay

and expressed readiness to pay the balance of Rs.2,78,27,211/-.

23.1 Delayed payment under the provisions of the Act may call for

penalty or interest but by no stretch of imagination in the

circumstances as pleaded by the petitioners, could be construed as an

attempt to evade the tax so as to entail prosecution of the petitioner

for the alleged offence of Section 276C(2) of the Act.

24. Thus, in the considered opinion of this Court, the prosecution

initiated against the petitioners is illegal and tantamount to abuse of

process of law and required to be quashed.

25. In the result, the petition is allowed. The complaint made by the

Office of the Assistant Commissioner of Income Tax, Surat which has

culminated into Criminal Case No. 23693 of 2019 pending before the

Court of learned Chief Judicial Magistrate, Surat against the

petitioners for the offence punishable under Section 276C(2) read

R/CR.MA/22512/2019 JUDGMENT DATED: 06/07/2021

with Section 278E of Income Tax Act, as well as the order issuing

summons dated 13.6.2019 are quashed and set-aside. Rule is made

absolute.

(GITA GOPI,J) SAJ GEORGE