Kiran Kubendra Kalal Vs Income Tax Department Rep. (Karnataka High Court)
Allegation: In AY 2008-09, petitioner’s return showed tax of ₹17,090. However, challan submitted showed only ₹1,090 paid, with an extra digit “7” inserted in the challan to make it appear ₹17,090 was deposited.
Complaint: Filed under Sections 276C(2) & 277, IT Act (wilful tax evasion & false verification).
Petitioner’s Stand
- Paid full ₹17,090 to his Chartered Accountant (CA).
- Fraud was committed by CA & staff (accused nos. 2–4), who deposited only ₹1,090 and altered the challan.
- Statements of CA & staff recorded u/s 131 confirmed they received the full amount & admitted the fraud.
- Petitioner immediately cleared the balance tax once show-cause notice was issued.
- No intention or benefit accrued to him; hence prosecution unjustified.
Department’s Stand
- Petitioner signed the return and challan& hence liable.
- Claimed collusion with CA; failure to act against CA.
- Invoked Section 278E (presumption of culpable mental state).
Court’s Findings
- Section 276C(2): Attracts only if there is a wilful attempt to evade tax. Since petitioner had already paid full tax to CA, no such wilful attempt existed.
- Section 277: Requires that person knowingly makes a false verification. Petitioner, having trusted his CA after paying full tax, cannot be said to have knowingly made a false statement.
- Statements of CA & staff: Admitted fraud by them, not petitioner.
- Not a beneficiary: Petitioner gained nothing; instead, he suffered due to CA’s fraud.
- Supreme Court principle (Rafiq v. Munshilal, AIR 1981 SC 1400): Litigant should not suffer for the misconduct of his agent. Applied here by analogy.
- No foundational facts: To invoke presumption under s. 278E, foundational facts must exist. They were absent here.
Decision
- Petition allowed.
- Entire proceedings in C.C.No.710/2015 (Prl. JMFC, Gokak) quashed against petitioner.
- Court held continuation of prosecution would amount to abuse of process of law.
The Karnataka HC quashed the criminal prosecution against the taxpayer, holding that fraud was committed by the CA & staff, not by the assessee who had duly paid his tax liability
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