The Madras High Court highlighted the assessee’s eligibility for benefits under Section 279(1A) of the Income Tax Act, given the penalty reduction from 300% to 100% of the disputed amount.
Case Title: The Principal Commissioner of Income Tax Versus K.M.Mammen
Case No.: W.A. No.1767 of 2022 and C.M.P. No.12970 of 2022
Decided on: 11th December, 2023
CORAM: THE HON’BLE MR. JUSTICE R. MAHADEVAN AND THE HON’BLE MR. JUSTICE MOHAMMED SHAFFIQ
Facts of the Case
In a writ appeal filed by the tax department, K M Mammen, the chairman and managing director of MRF Limited, was charged with moving large amounts of Euro currencies to a trust through LGT Bank Liechtenstein. The appeal challenged a single judge’s decision. The penalty for the assessment year 2002–03 was lowered from 300% to 100% of the tax that was attempted to be evaded following several processes and appeals. Because of the severity of the fraud and the fact that the offence was not compoundable, the Director General of Income Tax denied the compounding request.
A dismissal of the tax department’s appeal followed the sole judge’s ruling that the assessee is entitled to Section 279(1A) benefits as a result of the penalty reduction. The tax department filed a writ appeal, which was dismissed, contesting the ruling of a single court that ordered the compounding of tax evasion charges under Section 279(2). In the case, K M Mammen was charged with transferring money to a trust. The non-compoundable nature of the violation was cited by the Director General of Income Tax in rejecting the compounding application, despite the reduction in penalty. Highlighting the advantages of Section 279(1A), the lone judge ruled in favour of the assessee. Now, the department’s writ appeal against this decision has been dismissed.
Legal Provisions
The primary sections involved in the present case are Section 279(1A), Section 279(2), Sections 276C, and 277 of the Income Tax Act, 1961. Section 279(2) deals with the compounding of offences under the Income Tax Act. Sections 276C and 277 relate to offences under the Income Tax Act. When the penalty is decreased, Section 279(1A) offers protection from prosecution for tax violations.
Issues
Is the assessee, K M Mammen, entitled to the benefit of Section 279(1A) of the Income Tax Act, granting immunity from prosecution for tax offences, due to the reduction of penalty from 300% to 100%?
Can the tax department contest the court’s directive for compounding of criminal prosecution when it failed to challenge the single judge’s earlier judgment that definitively addressed the matter?
Courts analysis and decision
The court affirmed the single judge’s ruling, emphasizing that the assessee was entitled to the advantages specified in Section 279(1A) of the Income amount Act because the penalty was reduced from 300% to 100% of the amount in question. The assessee is protected from prosecution for tax offences when the penalty is reduced, according to the court’s clarification of Section 279(1A). The judges further declared that for the purported violations of Sections 276C and 277, the assessee is entitled to seek compounding under Section 279(2). Notably, the court stressed that any challenge to the court’s orders for compounding criminal prosecution is barred by the department’s refusal to contest the single judge’s previous decision, which handled the matter completely.
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Written by- Rupika Goundla