Allowed

Sri. K Mohammed Haris v. the Income Tax Department

Karnataka HC24 Sept 2021CRL.P/689/2020

Case brief

AI extract

What is this about?

The High Court of Karnataka allowed a criminal petition under Section 482 CrPC quashing proceedings under the Black Money Act. The court held that the accused, who filed a revised ITR disclosing foreign assets within the statutory time limit under Section 139(5) of the Income-tax Act, could not be convicted for willful non-disclosure.

What did the court decide?

Criminal proceedings in C.C.No.4179/2019 and I.A.No.2/2020 pending before II J.M.F.C. Court, Mangaluru were quashed.

Sri. K Mohammed Haris Vs the Income… — Constitutional and Fundamental Rights | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 24^TH DAY OF SEPTEMBER, 2021

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BEFORE

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THE HON’BLE MR. JUSTICE K.NATARAJAN

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CRIMINAL PETITION NO.689 OF 2020

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BETWEEN

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SRI K. MOHAMMED HARIS AGED ABOUT 44 YEARS, RESIDING AT 19-10-623/11, UMARYA GARDEN, BR. KARKERA ROAD, MANGALURU – 575 001.

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... PETITIONER

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(BY SRI SHASHIKIRAN SHETTY, SENIOR ADVOCATE FOR SRI SHAHBAAZ HUSSAIN, ADVOCATE)

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AND

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THE INCOME TAX DEPARTMENT REPRESENTED BY ITS DEPUTY DIRECTOR OF INCOME TAX (INVESTIGATION), UNIT-2, ATTAVARA, MANGALORE – 575 001, SHRI SHERIEF RASHEED, AGED ABOUT 33 YEARS.

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... RESPONDENT (BY SRI JEEVAN J. NEERALGI, ADVOCATE)

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THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF THE CODE OF CRIMINAL PROCEDURE, PRAYING TO SET ASIDE THE ORDER DATED 14.10.2019 PRODUCED AT AT ANNEXURE-B, IN C.C.NO.4179/2019, PENDING ON THE FILE OF THE II, J.M.F.C. COURT, AT MANGALURU AND QUASH THE

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COMPLAINT DATED 20.07.2019 PRODUCED AT ANNEXURE-A IN PC NO.73/2019.

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THIS CRIMINAL PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 16.09.2021 AND COMING ON FOR PRONOUNCEMENT , THIS DAY THE COURT PRONOUNCED THE FOLLOWING

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ORDER

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This petition is filed by the petitioner-accused under Section 482 of Cr.P.C. for quashing the complaint filed by the respondent-Income Tax Department in C.C.No.4179/2019 registered in P.C.No.73/2019.

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Heard the arguments of Sri Shashikiran Shetty, learned senior counsel for the petitioner and Sri Jeevan J. Neeralgi, learned counsel for the respondent.

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The case of the petitioner is that the respondent has filed a private complaint under Section 200 of Cr.P.C., and the same is registered in P.C.No.73/2019, wherein, the respondent has filed a complaint for the offence punishable under Section 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition

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of Tax Act, 2015 (for short ‘Black Money Act’) for the assessment year 2017-18. It is alleged by the complainant that the complainant is the Deputy Director of Income Tax (Investigation), Mangaluru. The complainant submits that the Principal Director of Income Tax (Investigation), Bengaluru has authorised the filing of the complaint vide sanction order dated 27.03.2019. A search and seizure action under Section 132 of the Income Tax Act, 1961 (for short ‘I.T. Act’) was conducted on 08.02.2018 in case of M/s. Mukka Sea Food Industries Private Limited, Mangaluru and in the residence of accused. During the course of search proceedings, certain books of accounts and documents were found and seized. The accused had purchased a flat in Ajman during the year 2014 for Rs.6.00 lakh Dirhams which is almost equivalent to Rs.1 Crore as on the date of purchase which is not declared in his Income Tax Returns (hereinafter referred to as ‘ITR’). The accused has also opened an account in Bank of Baroda, Sharjah Branch bearing A/c No.90040200015340 but not reported in any of his ITR. This bank account was operated

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during 25.02.2015 to 26.02.2018. The accused also acquired interest in United Fish Meal FZC based out of Hamriyah Free Zone – Sharjah as on 31.07.2013 in which he continues to be as the main shareholder and Managing Director. The same was not declared in his ITR. The notice also caused to the accused. Subsequently, he has filed an ITR and also he has not declared in the ITR for the assessment year 2017-18. Subsequently, he has filed revised ITR but he has not declared voluntarily and willfully he has failed to disclose the same which is punishable under Section 50 of the Black Money Act. Hence, prayed for taking action in this behalf. Based upon the complaint, the trial Court took cognizance and registered a criminal case against the accused. Assailing the same, the accused is before this Court for quashing the criminal proceedings.

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Learned senior counsel for the accused vehemently contended that the Black Money Act came into force in July 2015 and the accused is assessing the properties and filed ITR on 31.03.2018. He has also filed a

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revised ITR as per Section 139(5) of the I.T. Act on 23.02.2019 . As per Section 139(5) of the I.T. Act, the revised return has to be filed within the relevant assessment year or before the completion of assessment, whichever is earlier. Here, the petitioner-accused has filed the revised ITR one month eight days earlier i.e., before completion of one year and has disclosed the income tax by paying necessary tax. Such being the case, the question of filing the complaint for the offence punishable under Section 50 of the Black Money Act does not survive since it is not attracted. Learned senior counsel also contended that even if the accused did not disclose the properties in the revised ITR as per Section 139(5) of the I.T. Act, then only it is punishable under Section 50 of the Black Money Act. Once it is disclosed, he cannot be prosecuted. Hence, prayed for quashing the complaint. In support of his case, the learned senior counsel for the petitioner has relied upon the Division Bench judgment of the High Court of Madras in W.A.No.1125/2018 and other connected matters dated 02.11.2018.

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Per contra, Sri Jeevan J. Neeralgi, learned counsel for the respondent has opposed the petition and contended that the accused had purchased the property in the assessment year 2013-14 but not disclosed in the ITR, till the search was conducted by the I.T. Department and the accused did not come forward to disclose the Black Money. Learned counsel has further contended that the due date of filing the ITR for the assessment year is 201718, but, the accused did not file the return or disclosed in the ITR filed on 31.03.2018. Even though, the I.T. Department has already conducted the search and issued notice to the accused, but the same was disclosed only after filing of the revised ITR filed on 23.02.2019. It is further contended that the accused has willfully suppressed the Black money without declaring the same, thereby, it is punishable under Section 50 of the Black Money Act. He further contended that as per Section 54 of the Black Money Act, the presumption is available to the prosecution where the accused is required to rebut the

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presumption, when the reverse burden is cast upon the petitioner-accused, he has to go for the trial and take all the available contention to disprove the case of the prosecution and it cannot be said that the accused has voluntarily declared his assets, but only after the search, the raid is conducted by the I.T. Department. Therefore, the accused is liable to be prosecuted under Section 50 of the Black Money Act. Hence, prayed for dismissing the petition.

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Learned counsel for the respondent has also

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contended that the revised ITR by disclosing the assets has been filed only after issuance of notice by the I.T. Department. In this regard, learned senior counsel for the petitioner has contended that for disclosing the assets in the ITR or in the revised ITR, there is no bar or differentiation made in the law either under Section 4 or under Section 50 of the Black Money Act. The disclosure of the foreign assets shall not be after issuance of the notice from conducting the search or raid by the respondent

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which means that there is no raider in the Act either in the I.T. Act or in the Black Money Act and there is no restriction that even after the disclosure of the assets in the ITR or revised ITR after the issuance of notice is punishable under the Act. He further contents that there is no prohibition or differentiation made in the Act for disclosure of the assets in the revised ITR after the raid or issuance of notice and also contended that the disclosure either before issuance of notice or after the issuance of notice does not make any difference. The offence is constituted only if it is not disclosed even in the revised ITR under Section 139(5) of the I.T. Act and then only the offence would attract. Hence, prayed for allowing the petition.

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Upon hearing the arguments and on perusal of the records, it is an admitted fact that the accused had purchased the flat in Ajman during the year 2014 for Rs.6.00 lakh Dirhams which is almost equivalent to Rs.1 Crore. He had an account in Bank of Baroda, Sharjah

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Branch and this bank account was operated during 25.02.2015 to 26.02.2018. The accused has also acquired interest (shares) in United Fish Meal FZC based out of Hamriyah Free Zone – Sharjah as on 31.07.2013. The accused was holding 60 shares out of 150 shares of M/s. United Fish Meal FZC as on 31.12.2016 and also he was holding 142 shares out of 150 shares of M/s United Fish Meal FZC as on 31.12.2017. He has paid crores of rupees to acquire his shareholding in M/s United Fish Meal during the year 2017-18. It is not in dispute that the search was conducted by the I.T. Authorities on 08.02.2018 and subsequently, they got issued a notice to the accused. It is also not in dispute that the accused had filed ITR on every assessment year and accordingly, he had filed the ITR for the assessment year 2017-18 on 31.3.2018 where he has not declared these 3 assets in his ITR. But it is also an admitted fact that the accused subsequently has filed the revised ITR on 23.02.2019 after making payment of tax in the voluntary disclosure scheme introduced by the Government of India. Now, the question arises that once

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he has declared either in the original ITR or in the revised ITR, whether it is punishable under Section 50 of the Black Money Act. In this regard, it is necessary to refer Sections 4 and 50 of the Black Money Act, which is as under:

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“4. Scope of total undisclosed foreign

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income and asset. – (1) Subject to the provisions of this Act, the total undisclosed foreign income and asset of any previous year of an assessee shall be, -

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(a) the income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Income-tax Act;

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(b) the income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Incometax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-

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section (1) or under sub-section

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(4) or sub-section (5) of section 139 of the said Act; and

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(c) the value of an undisclosed asset located outside India.

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(2) Notwithstanding anything contained in sub-section (1), any variation made in the income from a source outside India in the assessment or reassessment of the total income of any previous year, of the assessee under the Income-tax Act in accordance with the provisions of section 29 to section 43C or section 57 to section 59 or section 92C of the said Act, shall not be included in the total undisclosed foreign income.

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(3) The income included in the total undisclosed foreign income and asset under this Act shall not form part of the total income under the Income-tax Act.

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“50. Punishment for failure to furnish in return of income, any information about an asset (including financial interest in any entity) located outside India .- If any person, being a resident other than not

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ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of that Act, wilfully fails to furnish in such return any information relating to an asset (including financial interest in any entity) located outside India, held by him, as a beneficial owner or otherwise or in which he was a beneficiary, at any time during such previous year, or disclose any income from a source outside India, he shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine.”

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On perusal of Section 4(1)(a), it says that the income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Income Tax Act.

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Section 4(1)(b) refers that, the income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Incometax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Act. Then it is an offence which is punishable under Section 50 of the Black Money Act.

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Section 50 of the Black Money Act also defines that the punishment for failure to furnish in return of income, any information about an asset (including financial interest in any entity) located outside India. This section also reveals that if any person, being a resident other than not ordinarily resident in India within the meaning of clause(6) of section 6 of the Income Tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of that Act, willfully fails to furnish in such return any information relating to an asset (including

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financial interest in any entity) located outside India, held by him, as a beneficial owner or otherwise or in which he was a beneficiary, at any time during such previous year, or disclose any income from the source outside India, he shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine.

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In this case, admittedly, the petitioner-accused is said to have acquired the property during 2013-14 as per the submission made by the learned counsel for the respondent. The learned senior counsel for the petitioner also submits that the I.T. Department has already filed one more complaint against the petitioner for non-disclosure. But in this case, it is pertaining to the assessment year 2017-18. The revised ITR filed by the petitioner which is available on record at Annexure-F reveals that the assessment year mentioned as 2017-18 and the original ITR under Section 139(1) & (4) of I.T. Act has been filed on 31.03.2018. It also reveals that the petitioner had filed

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the revised ITR on 23.02.2019. This revised return is filed as per sub-section 5 of Section 139 of I.T. Act. The learned counsel also brought to the notice of this Court that as per Circular issued by the Government that the assesee is required to file the revised ITR as per the unamended Act one year from filing of the original ITR. Subsequently, from 14.05.2016 by way of amendment to sub-section 5 of Section 139 of the I.T. Act is referred as under:

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“(5) If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.”

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In this case, the ITR furnished by the petitioner on 31.03.2018, then the petitioner will get one year for filing the revised ITR as per Section 139(5) of the I.T. Act from the date of filing the original ITR. Subsequently, Act amended and time for one year for filing the revised ITR

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has been omitted and the revised ITR shall be filed within the end of relevant assessment year or before the completion of the assessment year whichever is earlier.

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In view of the amendment in the year 2016, time prescribed is one year from the end of relevant assessment year or before the completion of assessment year whichever is earlier. If the original ITR was filed on 31.03.2018 and if we calculate for one year, it ends on 31.03.2019, but, the petitioner has filed the revised ITR on 23.02.2019, i.e., one month prior to the expiry of one year. In the complaint, the complainant has also accepted regarding furnishing the ITR and revised ITR, but it says only that he has not voluntarily declared the income in the assessment year and willfully failed to disclose and disclosed only after search conducted by the I.T. Department and hence, it is contended that it is an offence. In my considered opinion, the allegation made by the respondent-I.T. Department is not sustainable for the reason that whether the notice is issued or not or whether

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the search is conducted or not, but the petitioner has already filed the ITR as per Section 139(1) & (4) as on 31.03.2018 and as per 139(5) of the I.T. Act, he is having one year time for filing revised ITR from filing of the original ITR till the end of the said assessment year. The respondent has already got issued notice to the petitioner on 31.10.2018. This notice was issued by the respondent after filing of the original ITR.

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As I held above, another one year time is available for the petitioner to file his revised ITR as per Section 139(5) of the I.T. Act. Accordingly, he has filed within that one year time and disclosed his assets by paying necessary tax. It also reveals that he has declared the assets in the revised ITR. Therefore, once he declares the foreign assets within one year from the date of filing of original ITR, it cannot be considered, that he has willfully not declared or failed to declare even in the revised ITR filed under Section 139(5) of the I.T. Act. To attract the offence under Section 4 and penalty under Section 50 of

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the Black Money Act would arise only even in the revised ITR under Section 139(5) of the I.T. Act, if the petitioner has not disclosed the foreign assets, then only it is an offence under Sections 4 and 50 of the Black Money Act.

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In similar case, the Division Bench of Madras High Court has also considered in the case of Srinidhi Karti Chidambaram vs. The Principal Chief Commissioner of Income Tax (Tamil Nadu and Puducherry) and others in W.A.No.1125/2018 and other connected matters dated 02.11.2018 has held at paragraph Nos.185, 188 and 189 which is as under:

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“185. The Legislature has consciously included Section 139(4) and 139(5) in Section 50 of the BM Act and has excluded it in Section 49 of the BM Act. The petitioners are being prosecuted under Section 50 of the BM Act. If the contention of the Department is accepted, then the term "or sub-Section (4) or subSection (5) of Section 139" would be rendered meaningless. The purpose of Section 139(5) of the IT Act, as discussed above, is to enable the assessee, to file a revised return, if having

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furnished a return, under sub-Section (1) or sub-Section (4), the assessee discovers any omission or any wrong statement therein. Even assuming that schedule AL would take into its ambit, discovery of an asset, outside the country, even if there is no source of income, outside the country, even then, an offence under Section 50 cannot be attracted, till the time period for filing a return, under Section 139(5) of the Income Tax Act, is not over.

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188. Reading of Section 139(5), as it stood then, would show that the assessee was permitted to file revised return, under Section 139(5), even in pursuance to the notice, under sub-Section (1) to Section 142. If the assessee discovers omission or any wrong statement, in pursuance to the notice, under Section 142, he still had an option to file a revised return at any time, before expiry of one year, from the end of the relevant assessment year, in which case, as stated above, the notice under Section 10, can at best be construed only as a notice, under Section 142 of the Income Tax Act.

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189. It is trite law that a Section which has a penal consequence has to be read strictly

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and therefore, the words, "or sub-Section (4) or sub-Section (5) of Section 139" has to be given some meaning and an offence, under Section 50 of the BM Act, would be attracted, only after the period to file the revised return, under Section 139(5) is over and if there is a wilful failure to furnish the information of a foreign asset/financial interest in the return. Except in cases, of course, where there is a complete fraud played by the assessee, by filing a false return.”

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I am in the respectable agreement with the decision of the Division Bench of the High Court of Madras, wherein, here in this case also the petitioner-assessee was having time till 31.03.2019 i.e., one year from the date of filing the original ITR in order to file the revised ITR. In the above said case, even before the expiry of one year, the I.T. Department has issued notice to the assessee which was under challenge. But here in this case, the notice was issued prior to filing of the ITR. Subsequent to filing of the ITR, the petitioner-assessee has already filed the revised ITR as per Section 139(5) of the I.T. Act as on 23.02.2019

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i.e., before expiry of 31.03.2019. In order to attract offence under Section 50 of the Black Money Act even in spite of filing the revised ITR under sub-section 5 of Section 139 of I.T. Act, if the assets were not disclosed, then only the prosecution can be launched under Section 50 of the Black Money Act. Therefore, the complainant alleging in the complaint that the assessee willfully has not disclosed the foreign assets in the ITR as well as revised ITR is not sustainable under the law. Therefore, filing of the complaint by the complainant under Sections 4 & 50 of the Black Money Act does not attract against the petitioner. Once he has filed the revised ITR under subsection 5 of Section 139 of the I.T. Act by declaring the assets, when there is no offence is made out, then conducting the trial is abuse of process of law.

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Though the learned counsel for the respondent has contended that the presumption under Section 54 of the Black Money Act is available in favour of the prosecution and accused is required to rebut the same is

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not sustainable. The initial burden of proving the case is always with the complainant-prosecution and after discharging the initial burden, then the burden shifts on the accused to rebut the presumption available under the law. When the assets were already disclosed in the revised ITR under Section 139(5) of the I.T. Act, it cannot be said that there is any willful non-disclosure by the accused. When there is mens rea on the part of the accused, then the question of rebutting the presumption under Section 54 of the Black Money Act does not arise. Even otherwise, if the assessee failed to disclose the foreign assets under sub-section (1) or sub-section (4) or sub-section (5) of Section 139 of the I.T. Act, fails to furnish any information relating to any asset at any time during such previous year, the Assessing Officer may direct that such person shall pay, by way of penalty as per Section 43 of the Black Money Act. Apart from that, it is not a case of the I.T. Department that there were any income yield by the petitioner from those assets. Therefore, I hold that the complaint itself is not sustainable once the assessee has

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already filed the revised ITR by disclosing the foreign assets and the question of saying that he has willfully failed to disclose the assets cannot be acceptable. When there is no offence is made out, then conducting the proceedings against the petitioner-assessee is abuse of process of law and hence, liable to be quashed. Accordingly, I proceed to pass the following

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ORDER

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Criminal Petition is allowed .

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The criminal proceedings on the complaint in C.C.No.4179/2019 registered upon P.C.No.73/2019 against the petitioner pending on the file of II Judicial Magistrate First Class, Mangalore are hereby quashed.

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In view of disposal of the main petition, pending I.A.No.2/2020 does not survive for consideration and the same is disposed of.

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Sd/JUDGE

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GBB

Sri. K Mohammed Haris v. the Income Tax Department

Case brief

What is this about?

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Sri. K Mohammed Haris v. the Income Tax Department

Case brief

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