Case Note & Summary
The petitioner, Nayan Jayantilal Balu, engaged in trading of ferrous and non-ferrous metals, filed his return of income for Assessment Year 2009-10 on 20th March 2010. The Assessing Officer reopened the assessment under Section 148 of the Income Tax Act, 1961 by notice dated 28th March 2014 and passed an assessment order on 4th March 2015, making an addition of Rs.34,25,377/- being 12.5% of alleged bogus purchases of Rs.2,74,03,016/-. The petitioner appealed against this order to the Commissioner of Income Tax (Appeals) on 27th April 2015. Subsequently, on 23rd March 2016, the Assessing Officer issued another notice under Section 148 and made an addition of Rs.12,91,069/- being 12.5% of alleged bogus purchases. The petitioner challenged this second assessment order before the CIT(A) as well. Despite the pendency of these appeals, the Principal Commissioner of Income Tax-19 (Respondent No.3) passed an order on 25th January 2018 sanctioning prosecution under Section 276C(1) of the Act, and a complaint was filed in the 38th Court of Additional Chief Metropolitan Magistrate, Ballard Pier, Mumbai being CC No.1123 of 2018. The petitioner filed a writ petition under Article 226 of the Constitution read with Section 482 CrPC challenging the sanction order and the complaint. The High Court held that the sanctioning authority did not apply its mind independently and mechanically granted sanction without considering the petitioner's explanation and the pendency of the appeals. The court also noted that the complaint was filed during the pendency of the appeals, which could prejudice the petitioner. Consequently, the court quashed the sanction order dated 25th January 2018 and the complaint CC No.1123 of 2018.
Headnote
A) Criminal Law - Sanction for Prosecution - Section 276C(1) Income Tax Act, 1961 - Non-Application of Mind - Sanctioning authority must independently apply mind to material and consider assessee's explanation; failure to do so renders sanction invalid - Held that the sanction order was passed mechanically without considering petitioner's reply and pending appeal, hence quashed (Paras 7-10). B) Criminal Law - Prosecution Complaint - Section 276C(1) Income Tax Act, 1961 - Pendency of Appeal - Where appeal against assessment order is pending, prosecution cannot be launched as it may prejudice the assessee's rights - Held that the complaint filed during pendency of appeal before CIT(A) is liable to be quashed (Paras 11-12).
Issue of Consideration
Whether the sanction order dated 25th January 2018 under Section 276C(1) of the Income Tax Act, 1961 and the consequent complaint were valid when the sanctioning authority did not consider the petitioner's explanation and the appeal against the assessment order was pending
Final Decision
The High Court allowed the petition and quashed the sanction order dated 25th January 2018 passed by Respondent No.3 and the complaint CC No.1123 of 2018 pending before the 38th Court of Additional Chief Metropolitan Magistrate, Ballard Pier, Mumbai.
Law Points
- Sanction for prosecution under Section 276C(1) of Income Tax Act
- 1961 requires independent application of mind
- consideration of assessee's explanation
- and cannot be granted mechanically during pendency of appeal against assessment order
