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Prosecution can be launched before Income Tax Assessment completion

 In Rohit Kumar Nemchand Piparia vs The Deputy Director of Income Tax (Inv), petition was filed before the High Court to quash the preceding initiated against the Appellants before the  Court of the Additional Chief Metropolitan Magistrate, Economic Offences-II, Egmore, Chennai, taking cognizance for the offence under Section 276C(1) of the Income Tax Act, 1961.

The Dept. alleged that the petitioner had entered into 165 share transaction during the financial year 2007-08 and filed his return of income for the assessment year 2008-09. Though the tax has been deducted, it was not fully deducted and the petitioner did not disclose in his return of income under the head Capital Gain and paid the tax. Thus, the petitioner failed to show the same in his return of income and attempted to evade payment of tax. Only after deduction by the income tax department, the petitioner had share transactions during the relevant financial year and accepted the same. Therefore, the petitioner committed the offence punishable under Section 276C(1) of the Income Tax Act, 1961.

The petitioner claimed that the said assessment order has been challenged by the petitioner before the Income Tax Appellate Authority and by an order dated 28.08.2018, the said assessment order has been set aside. Therefore, the very basis of the lodgement of the complaint itself set aside and as such the petitioner is not at all liable to be prosecuted. He further submitted that while being so, suppressing the said fact that the said assessment order itself was set aside, the respondent herein granted sanction order dated 16.10.2018 to prosecute the petitioner under the Income Tax Act. Therefore, on this ground alone, the complaint cannot be sustained as against the petitioner.

The High Court disagreeing with the Petitioner and referring to the judgment of the Supreme Court in Radheshyam Kejriwal Vs. State of West Bengal & anr, (2011) 3 SCC 437, held that :-

(i) Adjudication proceeding and criminal prosecution can be launched simultaneously; 

(ii)Decision in adjudication proceeding is not necessary before initiating criminal prosecution; 

(iii)Adjudication proceeding and criminal proceeding are independent in nature to each other;

(iv)The finding against the person facing prosecution in the adjudication proceeding is not binding on the proceeding for criminal prosecution;

(v) Adjudication proceeding by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20 (2) of the Constitution or Section 300 of the Code of Criminal Procedure; 

(vi)The finding in the adjudication proceeding in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceeding is on technical ground and not on merit, prosecution may continue; and 

(vii) In case of exoneration, however, on merits where allegation is found to be not sustainable at all and person held innocent, criminal prosecution on the same set of facts and circumstances can not be allowed to continue underlying principle being the higher standard of proof in criminal cases.


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