Karnataka High Court Quashes Section 277A Prosecution — Absence of Pre-Amendment Reporting Duty Under Section 285BA r.w. Rule 114E Shields Co-operative Bank Chairman

Overview

A significant ruling has emerged from the Karnataka High Court in Mohit Maski Vs Income Tax Department, where the Court exercised its inherent jurisdiction under Section 482 Cr.P.C. to quash criminal proceedings initiated against the Chairman of a Souharda co-operative bank. The prosecution had been launched under Section 277A of the Income Tax Act, 1961, premised on alleged non-furnishing of statements of financial transactions as required under Section 285BA read with Rule 114E of the Income Tax Rules, 1962. The High Court's ruling firmly establishes that where no statutory obligation existed during the relevant period, criminal liability cannot be conjured retrospectively through a later legislative amendment.

Background and Factual Matrix

The Parties and the Proceedings

The petitioner, Mohit Maski, served as Chairman of M/s. SUCO Souharda Sahakari Bank Ltd. and was arrayed as accused no.2 in a private complaint filed by the Income Tax Department. The complaint, dated 29.03.2019, was taken cognizance of vide order dated 08.04.2019, giving rise to proceedings in C.C. No.130/2019 before the Special Court for Economic Offences, Bengaluru.

The petitioner challenged:

  • The complaint dated 29.03.2019 (Annexure-A)
  • The cognizance order dated 08.04.2019 (Annexure-B)
  • The entirety of proceedings in C.C. No.130/2019

The Allegation

The Income Tax Department's complaint alleged that the Bank, along with its Chairman and CEO, was mandated under Section 285BA of the Income Tax Act, 1961 read with Rule 114E of the Income Tax Rules, 1962 to furnish statements of financial transactions or reportable accounts for financial years 2004-05 to 2015-16. Non-compliance with this reporting obligation, the Department contended, constituted an offence punishable under Section 277A of the Act.

Whether the Reporting Obligation Applied

The pivotal question before the Karnataka High Court was deceptively straightforward yet legally weighty:

Was a Souharda co-operative bank legally bound to submit annual information statements under Section 285BA read with Rule 114E for financial years prior to the amendment that expressly included co-operative banks within the class of reporting persons?

A consequential but equally important question was:

Can criminal prosecution under Section 277A survive where the very statutory duty alleged to have been breached has already been held inapplicable by a final order of the Income Tax Appellate Tribunal in connected penalty proceedings involving the same entity?

Arguments Advanced by the Petitioner

Senior Counsel appearing for the petitioner placed the following contentions before the Court:

  1. Prospective Amendment: The provision in Section 285BA of the Act was substituted by the Finance Act, 2017 with effect from 01.04.2015, and co-operative banks were included within the reporting framework only from that date — not for any earlier period.

  2. No Retrospective Penal Obligation: A reporting obligation cannot be imposed retrospectively on co-operative banks for financial years preceding the amendment, and criminal liability cannot be constructed on a non-existent duty.

  3. Finality of ITAT Decision: Reliance was heavily placed on the judgment of the Income Tax Appellate Tribunal, Bengaluru dated 24.05.2023 in ITA Nos. 263 to 271/Bang/2023 in the case of M/s. SUCO Souharda Sahakari Bank Ltd. v. The Joint Director of Income Tax [I and CI], Bengaluru — which were ancillary penalty proceedings involving the very same Bank. The Tribunal had categorically held that the pre-amendment reporting default was legally unsustainable.

  4. Reasonable Cause Under Section 273B: The Tribunal, in the penalty proceedings, had found that the Bank genuinely believed it was not obligated to file the statement, constituting a bona fide and reasonable cause under Section 273B of the Act, and accordingly deleted the penalties levied under Section 271FA.

Revenue's Stand