IN HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS 24TH DAY OF FEBRUARY, 2020 BEFORE HON BLE MR. JUSTICE SURAJ GOVINDARAJ CRIMINAL PETITION NO.101902/2014 BETWEEN: M/s. PACE VISION, 3RD FLOOR, SAMSUKHA COMPLEX, KHADE BAZAR, BELGAUM. REP. BY ITS PARTNER SRI NAGESH CHABRIA AND SMT. NISHA CHABBARIA. PETITIONER (BY SRI.KIRAN JAVALI, ADVOCATE FOR SRI V.M.SHEELVANT, SRI M.L.VANTI, SRI VINAY KOUJALAGI, AND SRI M.S.MITTALKOD, ADVS.) AND: INCOME-TAX DEPARTMENT BY ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, BELGAUM. (SRI PRASANNA KUMAR B.K.) RESPONDENT (BY Y.V.RAVIRAJ, ADVOCATE) 2 THIS CRIMINAL PETITION IS FILED 482 OF CR.P.C., SEEKING TO QUASH ORDER OR TAKING COGNIZANCE DATED 29.03.2014 AND INITIATION OF PROCEEDINGS PURSUANT THERETO AS AGAINST PETITIONER IN C.C.NO.219/2014 PENDING ON FILE OF COURT OF JMFC III COURT, BELGAUM FOR OFFENCE PUNISHABLE UNDER SECTION 276CC OF INCOME TAX ACT, 1961. THIS PETITION COMING ON FOR ORDERS THIS DAY, COURT MADE FOLLOWING: ORDER petitioner is before this Court seeking for quashing of order taking cognizance dated 29.03.2014 and initiation of proceedings pursuant thereto as against petitioner in C.C.No.219/2014 pending on file of Court of JMFC III Court, Belgaum, for offence punishable under Section 276CC of Income Tax Act, 1961 ( Act for brevity). 2. background facts of above matter are that on 29.03.2014, respondent Income Tax Department represented by Assistant Commissioner of Income Tax had filed complaint under Section 200 of Code of 3 Criminal Procedure (Cr.P.C., for brevity) against petitioner alleging commission of offences punishable under Section 276CC of Act, as regards non-filing of Income Tax returns in terms of Sections 139(1), 142(1) or 153 of Act, which provides for matters relating to filing of return of income. 3. It is alleged that petitioner was partnership firm consisting of two partners and was engaged in business which resulted in taxable income however no return of income was filed in year 2009-10 on or before due date. survey was conducted under Section 133(A) of Act and it is only thereafter on 30.08.2013 that Income Tax returns were filed by petitioner after delay of 1430 days. Considering that non- filing of return to be deliberate willful and with intention to avoid scrutiny by Income Tax Department giving rise to statutory presumption under 4 Section 278(E), Department directed to initiate action. 4. Department had issued show cause notice on 28.10.2013 which was replied to by petitioner and further reply was also submitted on 30.12.2013. In furtherance thereof Commissioner of Income Tax, Belagavi is said to have issued sanction in terms of Section 279 of Act, on 12.03.2014 however in said sanction at paragraph No.9, it is stated as under; prior approval of Chief Commissioner of Income Tax, Panaji vide F.No.CCIT/PNJ/PROSECUTION/2013-14 dated 10.03.2014 for launching prosecution under Section 276CC is obtained and placed on record . 5. On basis of said sanction proceedings came to be initiated against petitioner in C.C.Nos.219/2014, 220/2014, 221/2014, 222/2014 and 223/2014, as regards which Magistrate took 5 cognizance and it is this cognizance that petitioner is aggrieved by. 6. Sri Kiran Javali, learned counsel appearing for petitioner contends that sanctioning authority in terms of Section 279 for offence as alleged against petitioner is Commissioner of Income Tax. Therefore, there was no need for Commissioner to take permission or approval from Chief Commissioner of Income Tax, Panaji, as stated in paragraph No.9 of sanction order dated 12.03.2014. He would contend that; (i) There is no methodology prescribed or available under Section 279 or any other provision of Act, to seek for approval from superior authority before issuing order of sanction. (ii) prescribed authority under Section 279 of Act, has to satisfy itself before sanctioning prosecution and sanction cannot be on basis of approval by superior authority. (iii) He submits 6 that in event of Chief Commissioner of Income Tax were to refuse permission sought for by Commissioner of Income Tax then naturally Commissioner of Income Tax could not have issued sanction order dated 12.03.2014. (iv) entire proceedings initiated against petitioner are not only misconceived but are initiated at direction of authority who is not sanctioning authority in terms of Section 279 of Act i.e. Chief Commissioner of Income Tax, is not sanctioning authority it is only Commissioner of Income Tax, who is sanctioning authority. Based on above, he would further contend that sanction order has been issued on basis of dictate of superior authority and sanction order is not order of Commissioner of Income Tax. 7. Per contra, Sri Y.V.Raviraj, learned counsel appearing for Department would submit that 7 prior approval sought for by Commissioner of Income Tax is only to safeguard interest of assessee and or persons against whom prosecution may be launched by Department and hence Commissioner of Income Tax by way of abundant caution had obtained prior approval from Chief Commissioner of Income Tax. 8. At request of both counsels, file relating to sanction was called for and perused. 9. On perusal of said file, it is seen that on 26.02.2014, Commissioner of Income Tax wrote to Chief Commissioner of Income Tax placing all facts, opinion received from standing counsel and re-commendation of Commissioner of Income Tax, that it was fit case to file prosecution under Section 276 CC of Act. However, Commissioner of Income Tax had further sought for accord of approval for launching prosecution under 8 Section 276CC of Act at earliest. Paragraph No.9 of said letter dated 26.02.2014 is hereunder reproduced for easy reference. (9). In view of above, it is submitted that it is fit case to file prosecution under Section 276CC of Income Tax Act, 1961. Therefore, it is requested to kindly accord approval in regard to launching of prosecution under Section 276CC of Income Tax Act, 1961 at earliest . 10. Pursuant thereto letter came to be issued by office of Chief Commissioner of Income Tax on 10.03.2014 addressed to Commissioner of Income Tax, Belagavi wherein Income Tax Officer (TEK) conveyed approval of Chief Commissioner of Income Tax, Panaji to Commissioner of Income Tax, Belagavi for launching of prosecution under Section 276CC of Act against two names persons, HUF and company. 11. It is on basis of said approval conveyed that sanction order dated 12.03.2014 came to be 9 issued by Commissioner of Income Tax, which though is verbatim reproduction of letter requiring approval dated 26.06.2014 also contains paragraph No.9 extracted above. 12. Sri Y.V.Raviraj, learned counsel would contend that meaningful reply of letter dated 26.12.2014 indicates that Commissioner of Income Tax has considered all relevant parameters obtained legal opinion and on that basis has satisfied itself that prosecution has to be initiated against petitioner and others and it is only by way of abundant caution that approval of Chief Commissioner of Income Tax was sought for. 13. approval by Chief Commissioner of Income Tax was mere formality and in pursuance thereto on 12.03.2014 sanctioning order was passed. He further submits that comparison of order dated 12.03.2014 with letter dated 26.02.2014 would 10 indicate that contents of both except for paragraph No.9 are identical on that basis thereof he submits that there is no influence exerted by Chief Commissioner of Income Tax or Commissioner of Income Tax for initiating prosecution and or that Commissioner of Income Tax has not been influenced by order of approval passed by Chief Commissioner of Income Tax. He relies on following judgments in support of his above contentions. (1) J.Jayalalitha Vs Asst. Commissioner of Income Tax 290 ITR 055 (Mad) at paragraph No.29. (2) Assistant Commissioner of Income Tax and Others Vs Velliappa Textiles Ltd and Others 263 ITR 0550 (SC) at paragraph No.8. 14. Heard learned counsel for both parties and perused documents. 11 15. question that would arise for consideration of this Court in above facts and circumstances of case is; Whether sanction order dated 12.03.2014 is one which could be said to have been influenced by superior authority and or whether procedure followed by Commissioner of Income Tax, is not in accordance with applicable law? 16. sanctioning authority under Section 279 of Income Tax Act, is either Principal Commissioner or Commissioner or Commissioner appeals. Though heading to said provision refers to Principal Chief Commissioner or Chief Commissioner Section 279(1) does not make any reference to Chief Commissioner. proviso however refers to powers of Principal Chief Commissioner or Chief Commissioner to issue such instructions or directions 12 to authorities as he may deem fit for institution of proceedings under this Section. 17. sanctioning authority being Commissioner of Income Tax there was no need for said Commissioner of Income Tax to have written to Chief Commissioner of Income Tax to seek for approval. Having so written in event of Chief Commissioner of Income Tax refusing permission sought for, entire exercise of Commissioner of Income Tax would be rendered superfluous in that, though order dated 26.02.2014 would indicate subjective satisfaction of Commissioner of Income Tax. satisfaction would be dependent on approval of Chief Commissioner of Income Tax in that only if Chief Commissioner of Income Tax accorded approval for prosecution than satisfaction of Commissioner of Income Tax could be considered and acted upon by sanctioning prosecution. However, if 13 Chief Commissioner of Income Tax were to refuse permission then Commissioner of Income Tax though satisfied could not initiate any proceedings due to non approval by Chief Commissioner of Income Tax. 18. In view of same, contention of Sri Kiran Javali, that prosecution has been initiated and sanction order came to be passed on 12.03.2014 being influenced by Chief Commissioner of Income Tax, though may not be entirely correct but however does merit consideration since no sanction could be given and prosecution initiated if Chief Commissioner of Income Tax refused permission, order dated 12.03.2014, can therefore be said to be order of Chief Commissioner of Income Tax, rather than Commissioner of Income Tax. Chief Commissioner of Income Tax is not sanctioning authority. 14 19. Further more even approval dated 10.02.2014 does not indicate any application of mind by Chief Commissioner of Income Tax nor is it signed by Chief Commissioner of Income Tax. Hence, even if it were to be assumed that Chief Commissioner of Income Tax was sanctioning authority there is no subjective satisfaction by Chief Commissioner of Income Tax for granting such sanction. 20. In view of above reasoning, process and procedure and methodology followed by Commissioner of Income Tax being not that as contemplated under Section 279 of Act. sanction order being passed with prior approval for Chief Commissioner of Income Tax, same is not tenable in law and entire proceedings initiated thereafter including those in C.C.No.219/2014 cannot be countenanced in law. Therefore, sanction letter dated 12.03.2014 and proceedings in 15 C.C.No.219/2014 pending on file of JMFC III Belagavi are hereby quashed. 21. Sri Y.V.Raviraj, learned counsel for Income Tax Department, at this juncture seeks for liberty to initiate fresh proceedings against petitioner and other related entities. No such liberty is required since there is no limitation period. sanctioning order being quashed only on technical grounds and not on merits. respondent would be free to initiate any proceedings as may be advised in accordance with law. Accordingly, petition is disposed of. Sd/- JUDGE msr Pace Vision v. Income-tax Department By Assistant Commissioner of Income-tax, Circle-2, Belgaum