prpri Delay in payment of Tax cannot be treated as an attempt to Evade Tax Delay in payment of Tax cannot be treated as an attempt to Evade Tax

Case Law Details

Case Name : Ganga Devi Somani Vs State of Gujarat (Gujarat High Court)
Appeal Number : R/Criminal Misc. Application No. 22512 Of 2019
Date of Judgement/Order : 06/07/2021
Related Assessment Year :

Ganga Devi Somani Vs State of Gujarat (Gujarat High Court)

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 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.2,78,27,21 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.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

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 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-1 2 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 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 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. 1 3,90,27,650/- 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 201 6-17 and Assessment Year 2017-18 but the complaint is filed only for the Assessment Year 2017-1 8. Self-assessment has been accepted by the department. As per the record, he stated that 80% of the tax amount 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 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 Co­operative 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 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 total income to be Rs. 12,50,49,940/- and the said Income Tax Return were signed by accused No.2 on 31.3.201 8. 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 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, 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 under­reported 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.

(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 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 201 6-17.

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 Rs.2,78,27,21 1/- 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 1st day of April, 1975; or

(ii) for any assessment year commencing on or after the 1st 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”.

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 2 76CC of the Act.’

18.1 After reading Section 139 of the Act, the Apex Court laid down in Para-19 as under:

“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 2 76CC.”

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 2 76CC 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 2 76CC 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 2 76CC 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 2 76CC 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.

24. Section 2 76CC, it may be noted, takes in sub-section (1) of Section 139, Section 1 42(1) (i) and Section 148. But, the proviso to Section 2 76CC takes in only sub-section (1) of Section 139 of the Act and the provisions of Section 1 42(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 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.

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, penalty or interest, etc. before charging or imposition or under­reporting 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 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.

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 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 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.2,78,27,21 1/-.

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 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.

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