Specific Sanction Under Section 278-B of IT Act Necessary To Prosecute: Delhi HC

The Delhi High Court, on July 19, observed that in the absence of a specific sanction under Section 278-B of the Income Tax Act, 1961 for prosecuting the petitioner under Section 276-CC, the trial court could not have taken cognizance of the complaint and framed charge against the petitioner.

Justice Asha Menon quashed all proceedings initiated by the Income Tax Department and observed that, “the edifice built without foundation must crumble.”

The writ petition challenged the complaint and all proceedings arising therefrom by the Income Tax Department including order by which charge was framed by the ACMM (Special Acts) Central District, Tis Hazari Courts, Delhi.

The petitioner and the company had been implicated as an accused in complaint case which had been filed against him as well as the company M/s ASM Traxim Pvt Ltd. for violation of the IT Act.

The allegations against the company were that it had not filed its income tax returns for the assessment year 2012-13. It was alleged that when a show cause notice  under Section 142(1) of the IT Act came to be issued to file the return on or before  August 2, 2013, the returns were actually filed only on 12th August, 2013. On July 14, 2014, sanction was accorded and on August 6, complaint was finally registered. The trial court held that the petitioner’s argument of not being a wilful defaulter was not sufficient to reject framing of charge and the presumption under Section 278-E of the Act could only be rebutted during the course of trial.

The Court, while examining the sanction obtained by the IT Department, stated that, “the sanction is specifically to institute a criminal complaint against the Company M/s ASM Traxim Pvt Ltd. It is crystal clear that the sanction has been accorded for the prosecution only of the “person” named as the “assessee”, namely the Company M/s ASM Traxim Pvt. Ltd. There is no sanction qua the petitioner, even as a “person” being a director/being responsible to the conduct of the business of the company.”

The Court held that the text of the sanction had no mention of the petitioner, i.e. the Director and proceeding against the petitioner on the sole basis that he had verified the returns and appended his digital signatures to the IT returns would tantamount to stretching the language of the sanction order too far.