Nayan Jayantilal Balu v. UOI

Case snapshot

Sections / provisions: 276C

Questions before the Court / Tribunal

• S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Bogus purchase – Estimate of 12.5 per cent of Bogus Purchase upheld by CIT(A) and ITAT – No penalty was levied – High Court held that prima facie ingredients of offenses are satisfied – Assessee has wilfully and intentionally evaded his tax liability – Writ petition to quash the prosecution was dismissed. [S. 148, 279(1), Art. 226 Code of Criminal Procedure, 1973, S. 482] The petitioner filed writ petition challenging the sanction of prosecution against the petitioner under section 276(1) of the Income -tax Act, 1961. Dismissing the petition the Hon’ble High Court held that where the Ld. Assessing Officer made an addition of 12.5 percent of purchases as bogus purchases and the same was upheld by the CIT(A) and ITAT. The Petitioner has wilfully and intentionally evaded his tax liability. The prima facie ingredients of…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

wp-2698-2021-F.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL SIDE APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO.2698 OF 2021 Nayan Jayantilal Balu residing at 72, 1st Floor, Bhavangiri Building, Nanubhai Desai Road, Near 1st Khetwadi Lane, Mumbai 400 004. .. Petitioner v/s. 1. Union of India. Through the Secretary , Department of Revenue, Ministry of Finance, Government of India, North Block, New Delhi-110 001. 2. The Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, North Block, New Delhi-110 001. 3. Principal Commissioner of Income Tax- 19 Designated Authority , Mumbai Matru Mandir, Grant Road (West), Tardeo Road, Mumbai-400 007 4. Income-tax Officer, 19(2)(4), Matru Mandir, Grant Road (West), Tardeo Road, Mumbai-400 007. 5. Assistant Commissioner of Income-tax- 19(1) Matru Mandir, Grant Road (West), Tardeo Road, Mumbai-400 007. 6. State of Maharashtra .. Respondents. Mr. Dharan V . Gandhi, for the Petitioner. Mr. Akhileshwar Sharma, for the Respondents. S.R.JOSHI 1 of 10

wp-2698-2021-F.doc CORAM: K. R. SHRIRAM & AMIT B. BORKAR,JJ. DATED : 7th DECEMBER, 2021. JUDGMENT:- (Per Amit B. Borkar, J) By this Petition under Article 226 of the Constitution of India read with Section 482 of Code of Criminal Procedure, Petitioner is challenging the order dated 25 th January 2018 passed by Respondent No.3, sanctioning the prosecution against Petitioner under Section 276C(1) of the Income Tax Act, 1961 (the said 'Act') and complaint filed against Petitioner in 38 th Court of Additional Chief Metropolitan Magistrate, Ballard Pier, Mumbai bearing CC No.1123 of 2018. 2 Petitioner is engaged in the business of trading in ferrous and non-ferrous metals. Petitioner filed his return of income on 20 th March 2010 for Assessment Year 2009-10. By notice dated 28 th March 2014, the assessment of Petitioner was re-opened under Section 148 of the said Act. The Assessing Officer on 4 th March 2015 passed an order of assessment, making addition of Rs.34,25,377/- being 12.5% of alleged bogus purchases of Rs.2,74,03,016/-. The Assessing Officer also issued show cause notice under Section 271(1)(c) of the said Act. 3 Petitioner, being aggrieved by order of assessment, filed an appeal with Commissioner of Income Tax (Appeals) [CIT(A)], Bombay , on 27th April 2015. 4 On 23rd March 2016, Assessing Officer issued another notice under Section 148 of the said Act, to which Petitioner replied. The S.R.JOSHI 2 of 10

wp-2698-2021-F.doc Assessing Officer, after hearing Petitioner made the addition of Rs.12,91,069/- being 12.5% of alleged bogus purchases of Rs.1,03,28,552/- by order dated 30th November 2016. CIT(A) by its order dated 19th December 2016 confirmed the order of Assessing Officer passed on 4th March 2015 5 Being aggrieved, Petitioner filed an Appeal before the Income Tax Appellate Tribunal (ITAT), which was dismissed on 3rd July 2017. 6 On 22 nd November 2017, Respondent No.3 issued a show cause notice to Petitioner as to why prosecution under Section 276C(1) and 277 of the said Act should not be initiated against Petitioner. 7 Petitioner on 18 th December 2017 filed a reply , pointing out that additions made were purely on an estimated basis. No penalty is levied on Petitioner. Thus, prosecution should not be instituted under Section 276C(1) of the said Act. On 26 th March 2018 Respondent No. 4 filed Criminal complaint no. 1123/2018 against petitioner. After filing the complaint, Assessing Officer passed an order, imposing a penalty on Petitioner of Rs.10,58,440/- which was challenged by Petitioner before the CIT(A) on 2nd May 2018. 8 According to Petitioner, he became aware of the prosecution lodged against him under Section 276C(1) of the said Act when he received a summons dated 29 th March 2019, requiring him to appear before the Additional Metropolitan Magistrate on 13th May 2019. S.R.JOSHI 3 of 10

wp-2698-2021-F.doc 9 Petitioner has, therefore, filed present Petition on 12 th July 2021, challenging the order of sanction of prosecution dated 25 th January 2018 and filing of complaint bearing CC No.1123 of 2018. 10 Respondents have filed a reply as per order of this Court dated 24 th August 2018. Petitioner has filed his affidavit in rejoinder on 22nd September 2021. 11 We have heard Mr. Dharan Gandhi, Counsel for Petitioner and Mr. Akhileshwar Sharma, Counsel for the Respondents. 12 Mr. Gandhi invited our attention to the instructions issued by Director (INV-I) and OSD(Legal), North Block, New Delhi. He submitted that prosecution under Section 276C(1) of the said Act could be initiated only when a penalty exceeding Rs.50,000/- is imposed under Section 271C (1) of the said Act, which is confirmed by ITAT . He submitted that the order of imposition of penalty is passed after the filing of the complaint. Said order is yet to be confirmed by ITAT . Therefore, the order of sanction of prosecution is contrary to law. 13 Mr. Sharma submitted that Petitioner had knowledge of the order of sanction in the first week of April 2019. Still, Petitioner has filed present Petition only on 12 th July 2021 without explaining laches in filing the Petition. He invited our attention to Section 276 of the said Act. He submitted that Respondents are entitled to initiate prosecution whenever a person willfully attempts to evade any tax, penalty or interest chargeable. He submitted that allegation against Petitioner is of evasion S.R.JOSHI 4 of 10

wp-2698-2021-F.doc evasion of tax, (2) evasion of penalty and (3) evasion of interest chargeable, is fulfilled. The order of sanction at Ex. ‘D-3’ shows that prosecution under Section 279(1) of the said Act has been accorded after recording satisfaction that Petitioner has attempted to evade tax. It is stated in the sanction order that Petitioner has failed to substantiate the claim of purchases amounting to Rs. 2,74,03,016/- and the assessing office held the purchases to be bogus and made an addition of Rs. 34,25,377/- (12.5% of the bogus purchases.) It is well settled that before granting sanction the authority must have before it the necessary report and the material facts which prima facie establish the commission of offence alleged for and that the sanctioning authority would apply its mind to those facts.

Appellant / petitioner / assessee submissions

The judgment does not separately label this side’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

wp-2698-2021-F.doc of tax and, therefore, ingredients of the offence alleged against Petitioner are, prima facie, satisfied. 14 For effective adjudication of the issue involved, it is necessary to set out relevant provision of the Income Tax Act. Section 276C(1) reads as under:- “Section 276C (1):- If a person willfully 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 under reported 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.” 15 On perusal of the provision, it appears that following ingredi - ents must be fulfilled to attract the offence under Section 276(C). a) Willful attempt to evade any tax. b) Willful attempt to evade any penalty; or c) Willful attempt to evade any interest chargeable or imposable under this Act; or d) under reports his income. A perusal of Section 276 (C) of the said Act shows that a prosecution can be initiated against the person even if one of the three ingredients, i.e. (a) S.R.JOSHI 5 of 10

The order of sanction is only an administrative act and not a quasi-judicial one nor is a lis involved. Therefore, the order of sanction need not contain detailed reasons in support thereof. But the basic facts that constitute the offence must be apparent on the sanction order and the record must bear out the reasons in that regard. A perusal of the sanction order clearly indicates that the sanctioning authority appears to have applied its mind to the facts placed before it and considered them and then granted sanction. 16 Laying down the scope of interference by the High Court in matters of quashing of FIR or complaint, the Apex Court, in the leading case of State of Haryana v.

2,74,03,016/- and the assessing officer held the purchases to be bogus and made an addition of Rs. 34,25,377/- (12.5% of the bogus purchases). On Appeal by Petitioner, CIT (A) vide order dated 19.12.2016 confirmed the addition. ITAT also confirmed said order. It is stated that, therefore, Petitioner has willfully and intentionally evaded his tax liability . 19 Taking into consideration accusations in the complaint and material on record, we are satisfied that, prima facie, the ingredients of the offences under Section 276C(1) of the said Act are satisfied. At this stage, this Court can not go into the truth or otherwise of the allegations made against Petitioner. 20 In the circumstances, we are satisfied that no interference under extraordinary jurisdiction under Article 226 of the Constitution of S.R.JOSHI 9 of 10

wp-2698-2021-F.doc India is called for. 21 Petition is, therefore, dismissed. (AMIT B. BORKAR,J.) (K. R. SHRIRAM,J.) S.R.JOSHI 10 of 10

Operative decision and relief

The operative relief must be read from the final paragraphs of the complete packaged judgment.

Ratio and legal principle

The narrow proposition associated with Nayan Jayantilal Balu v. UOI concerns s. 276c : offences and prosecutions – wilful attempt to evade tax – bogus purchase – estimate of 12.5 per cent of bogus purchase upheld by cit(a) and itat – no penalty was levied – high court held that prima facie ingredients of offenses are satisfied – assessee has wilfully and intentionally evaded his tax liability – writ petition to quash the prosecution was dismissed. [s. 148, 279(1), art. 226 code of criminal procedure, 1973, s. 482] the petitioner filed writ petition challenging the sanction of prosecution against the petitioner under section 276(1) of the income -tax act, 1961. dismissing the petition the hon’ble high court held that where the ld. assessing officer made an addition of 12.5 percent of purchases as bogus purchases and the same was upheld by the cit(a) and itat. the petitioner has wilfully and intentionally evaded his tax liability. the prima facie ingredients of… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in WRIT PETITION NO.2698 OF 2021.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Bogus purchase – Estimate of 12.5 per cent of Bogus Purchase upheld by CIT(A) and ITAT – No penalty was levied – High Court held that prima facie ingredients of offenses are satisfied – Assessee has wilfully and intentionally evaded his tax liability – Writ petition to quash the prosecution was dismissed. [S. 148, 279(1), Art. 226 Code of Criminal Procedure, 1973, S. 482] The petitioner filed writ petition challenging the sanction of prosecution against the petitioner under section 276(1) of the Income -tax Act, 1961. Dismissing the petition the Hon’ble High Court held that where the Ld. Assessing Officer made an addition of 12.5 percent of purchases as bogus purchases and the same was upheld by the CIT(A) and ITAT. The Petitioner has wilfully and intentionally evaded his tax liability. The prima facie ingredients of… Its practical value lies in the way the Bombay High Court connected the governing provisions—276C—to the procedural posture and evidence before it.

The authority level is High Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 276C and the decision date 2021-12-07; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Nayan Jayantilal Balu v. UOI, the proceeding is WRIT PETITION NO.2698 OF 2021, and the decision is dated 2021-12-07. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as K. R. SHRIRAM & AMIT B. BORKAR,JJ.. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 276C. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 276C — apply the exact version considered in the judgment.

Case network

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• Pr. CIT v. Macleods Pharmaceuticals Ltd. — Bombay High Court · Quashed / set aside

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