The Madras High Court has quashed the prosecution initiated by the income tax department under section 276C(2) of the Income Tax Act, 1961 by holding that there is no willful evasion of tax.
Section 276C (2) of the Income Tax Act, 1961 provides that if a person willfully attempts to evade the payment of any tax, penalty or interest under the Act, he shall be punishable with imprisonment for a term not less than three months but which may extend to two years.
The Petitioner/Assessee S.P. Velayutham filed his income tax return showing his tax liability but did not pay the full amount of self-assessment tax. An Assessment Order was passed by the authorities confirming his taxable income. Thereafter, an order for attachment of immovable property was passed by the income tax department and a show-cause notice was issued to the Assessee as to why prosecution under Section 276C (2) of the Income Tax Act should not be initiated against him for not paying the entire tax due as per his income tax return.
The Assessee submitted that the entire amount of tax was not paid by him due to loss in business and that after the attachment of immovable property he could not mobilise funds.
Justice N. Sathish Kumar observed that to prosecute a person there must be a willful attempt on the part of the assessee to evade payment of any tax, penalty, or interest.
“The explanation to the above section makes it very clear that the evasion by way of any false entry or statement in the books of account or other document or omission to make an entry in the books of accounts or other documents or any other circumstances which will have the effect of enabling the assessee to evade tax or penalty or interest chargeable or imposable under this Act or the payment thereof. Though explanation is inclusive it is not the case of the Department that the assessee has made any false entry in the statements or documents or omitted to make any such entry in the books of account or other documents or acted in any other manner to avoid payment of tax. It is not the case of the Department that the assessee has made an attempt to alienate the property in order to defeat the payment etc.”
The Court disagreed with the observations of the Telangana High Court in the case of M/s. Konark Refrigerator vs. Dy. Commissioner of Income Tax held that provision 140A on the failure of payment will not make the assessee a willful defaulter.
Quashing the proceedings, the Court observed that “Taking the overall fact and the nature of the complaint, this Court is of the view that the prosecution, in this case, is nothing but shear waste of time and there was no intention or willful attempt made by the Assessee to evade the payment of tax. Only he expressed his inability and mere failure to pay a portion of the tax cannot be construed to mean that he has willfully attempted to evade the payment of tax.”
S.P. Velayutham vs The Assistant Commissioner of Income Tax Non Corporate Circle
CITATION: 2022 TAXSCAN (HC) 235
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