TMI Blog2006 (12) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The period of 30 days expired, but no return was filed in compliance to the notice. Reminders were sent on August 22, 1994, February 10, 1995 and August 23, 1995, yet the return was not filed. Subsequently, a notice under section 142(1)(ii) of the Act was issued on July 31, 1995, calling upon the first petitioner to produce the accounts since as per the Act, the assessments need to be completed by March 31, 1996. The first petitioner failed to furnish the return of income and also failed to comply with the statutory notice. A best judgment assessment was completed under section 144 of the Act on February 9, 1996 and penalty proceedings for concealment of income were initiated under section 271(1)(c) of the Act. Penalty proceedings were also initiated for non-compliance of the notice under section 271(1)(b) of the Act. A demand inclusive of interest was made. The first petitioner challenged the assessment order before the Commissioner of Income-tax (Appeals). This appeal was partly allowed by order dated February 28, 1997. The Department has challenged that order in Appeal No. 1239 of 1997. The first petitioner has also challenged that order. Both the appeals are pending. On Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x payable on the total income determined on regular assessment is less than Rs. 3,000. Regular assessment is defined in section 2(40) of the Act and it reads as follows: "'Regular assessment' means the assessment made under sub-section (3) of section 143 or section 144;" (5) Therefore, since the assessment proceedings have not attained finality, it is a very relevant point which the trial Magistrate ought to have borne in mind. (6) The documents filed would show the factual position as to the filing of appeals against the assessment orders in the context of the quantum of tax liability and non-consideration thereof has resulted in the unjustified order refusing discharge. (7) In particular, it is pointed out by the learned counsel for the petitioners that as regards the firm, the tax liability has been assessed to be 'Nil' and there is no taxable income for the firm to be prosecuted. This has not been countered by the prosecution. (8) As regards the status of the proceedings against the first petitioner, as against the best judgment assessment, the first petitioner preferred an appeal and a substantial relief was granted by the appellate authority by scaling down the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant time have been subjected to action." (17) The trial Magistrate has not considered the validity of the sanction granted under section 279(1) of the Act. This sanction is a prerequisite for valid prosecution, as it lifts the bar to a prosecution. The requirements of a valid prosecution have been set out by the Supreme Court in Mansukhlal Vithaldas Chauhan v. State of Gujarat [1997] 7 SCC 622, wherein it has been held thus: "Since the validity of 'sanction' depends on the applicability of mind by the sanctioning authority to the facts of the case as also the material and evidence collected during investigation, it necessarily follows that the sanctioning authority has to apply its own independent mind for the generation of genuine satisfaction whether prosecution has to be sanctioned or not. The mind of the sanctioning authority should not be under pressure from any quarter nor should any external force be acting upon it to take a decision one way or the other. Since the discretion to grant or not to grant sanction vests absolutely in the sanctioning authority, its discretion should be shown to have not been affected by any extraneous consideration. If it is shown th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004] 9 SCC 686, where the Supreme Court has held that the question whether there was wilful failure to file the return must be adjudicated factually by the court which deals with the prosecution case. (5) The assessment of income of an assessee who has failed to furnish an income-tax return has no relevance to the initiation or continuation of prosecution, as has been held by the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC); [1984] Supp. see 437, where it was held that mere expectation of success in some other pending proceedings can never bar a criminal prosecution if the ingredients of the offence charged are prima facie fulfilled. (6) In any event, in this case, since no return has been filed till date, the offence still continues as the petitioners have not disclosed their true and correct income in the prescribed form, as required under section 139(1) of the Act. Reliance is placed on Smt. Maya Rani Punj v. CIT [1986] 157 ITR 330 (SC); AIR 1986 SC 293, where it was held that the non-compliance with the obligation of making a return is an infraction as long as the default continues and therefore, the fact as to the pendency of the adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The opinion on any matter may differ depending upon the person who views it. There may be as many opinions on a particular matter as there are courts, but it is no ground for the High Court to interdict the trial. It would be better for the High Court to allow the trial to proceed." (8) In this case, the learned trial magistrate was satisfied that there was a prima facie case that the petitioners had no intention to file their returns and therefore, he refused to discharge them from the proceedings. (9) The magistrate also, after going through the deposition of the sanctioning authority, P.W.4 and the documents exhibited by the prosecution, came to the conclusion that the relevant documents had in fact been placed before the sanctioning authority, who on an application made, granted sanction. (10) In Mansukhlal Vithaldas Chauhan v. State of Gujarat [1997] 7 SCC 622, while dealing with the issue of judicial review of an order granting sanction, the following observations were made by the Supreme Court: "This principle was reiterated in Tata Cellular v. Union of India [1994] 6 SCC 651 in which it was, inter alia, laid down that the court does not sit as a court of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel appearing for the petitioners and Mr. Gopal Subramaniam, learned Additional Solicitor General of India appearing for the respondent made detailed submissions and also submitted their written arguments, followed by supplementary arguments. Several decisions were cited by the learned counsel on either side in support of their respective submissions and since many of them reiterated the same points, only the important ones will be referred to. The learned trial magistrate had come to the conclusion that a prima facie case had been made out, largely based on the statutory presumption under section 278E of the Act, the constitutional validity of which was challenged in Writ Petitions Nos. 23581 to 23584 of 2006. Those writ petitions have been dismissed today by a separate order. Therefore, the petitioners cannot question in revision, the correctness of the learned magistrate presuming the culpable mental state of the petitioners, and their challenge as to the correctness of the order passed by the trial magistrate on other grounds alone has to be examined. The relevant portions of the complaint preferred against the first petitioner read as under: "The accused ought to have fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also deliberately did not file the return even after the receipt of notice issued to her under section 142(1), two reminder letters dated August 22, 1994 and February 10, 1995 and further letter dated August 23, 1995. ...In order to conduct inquiry to complete the assessment, a statutory notice under section 142(1) with a covering letter was issued to the accused on July 31, 1995, requiring the accused to furnish the following information:... The complainant states that as the accused wilfully failed to furnish her return of income and deliberately did not file the said return at all for the assessment year 1993-94 in spite of receiving statutory notice and despite giving of opportunities, show-cause notice dated June 14, 1996 and July 10, 1996, were issued to the accused asking her to explain why prosecution proceedings under section 276CC of Income-tax Act, 1961, should not be initiated against her..... ...The reasons given by the accused for such an inordinate delay are not tenable and cannot be accepted. Pre-occupations in official as well as party meetings cannot take overriding precedence over statutory duties. The persons in public life should respect and obey the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 4, 1990, of accused-1, its partners, viz., accused-2 and accused-3 are equally responsible and empowered to: (i) operate bank accounts; (ii) have full and equal rights in the management of the firm for its business activities; (iii) deploy funds for the business of the firm; (iv) appoint staff, watchmen etc.; and (v) represent the firm before income-tax, sales tax and other authorities, etc. Apart from the allegations regarding wilful and deliberate failure to furnish the return under section 139(1) of the Act and for failure to respond to the notice under section 142(1) of the Act, it is also stated in the complaint as follows: "In terms of the partnership deed and in accordance with the Partnership Act, all the partners are jointly and severally responsible and liable for all the activities of omissions and commissions of the partnership firm. Thus, accused-2 while enjoying the fruits of partnership has to bear the duties and responsibilities cast on her in carrying out and discharging the statutory obligations. The accused-2 was aware of the fact of non-filing of the return of income of the accused-1 firm as is evident from the notings from her own statement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid income-tax authorities as he may deem fit for institution of proceedings under this sub-section." Section 245 of the Code of Criminal Procedure reads thus: "245. When accused shall be discharged.-(l) If, upon taking all the evidence referred to in section 244, the magistrate considers, for reasons to be recorded, that no case against the accused has been made out which, if unrebutted, would warrant his conviction, the magistrate shall discharge him. (2) Nothing in this section shall be deemed to prevent a magistrate from discharging the accused at any previous stage of the case if, for reasons to be recorded by such magistrate, he considers the charge to be groundless." The judgment in Prakash Nath Khanna v. CIT [2004] 266 ITR 1 (SC); 1 [2004] 9 SCC 686 answers almost every question raised by the petitioners herein. The words "in due time" occurring in section 276CC of the Income-tax Act were interpreted in this decision and it was held that even if a return is filed in terms of sub-section (4) of section 139, that will not dilute the infraction in not furnishing the return in due time. The following words are relevant: "...There is no condonation of the said inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) or indicated in the notice given under sub-section (2) of section 139. There is no condonation of the said infraction, even if a return is filed in terms of sub-section (4). Accepting such a plea would mean that a person who has not filed a return within the due time as prescribed under sub-section (1) or (2) of section 139 would get benefit by filing the return under section 139(4) much later. This cannot certainly be the legislative intent. Another plea which was urged with some amount of vehemence was that the provisions of section 276CC are applicable only when there is discovery of the failure regarding evasion of tax. It was submitted that since the return under sub-section (4) of section 139 was filed before the discovery of any evasion, the provision has no application. The case at hand cannot be covered by the expression 'in any other case'. This argument though attractive has no substance. The provision consists of two parts. The first relates to the infractions warranting penal consequences and the second, measure of punishment. The second part in turn envisages two situations. The first situation is where there is discovery of the failure involving the evasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an offence in that prosecution. Explanation.- In this sub-section, 'culpable mental state' includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact. (2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.' There is a statutory presumption prescribed in section 278E. The court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the prosecution. Therefore, the factual aspects highlighted by the appellants were rightly not dealt with by the High Court. This is a matter for trial. It is certainly open to the appellants to plead absence of culpable mental state when the matter is taken up for trial. Looked at from any angle, the appeals are without merit and are dismissed." Actually, the above case answers almost all the grounds raised by the revision petitioners: Non-filing of returns under section 139(1) does not get condoned even if a return is filed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuing offence, the Supreme Court answered in the affirmative and held that: "If a duty continues from day-to-day, the non-performance of that duty from day-today is a continuing wrong". The decision in Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal [1991] 3 SCC 442 was cited by the respondents to counter the contentions raised on behalf of the petitioners that applying the proviso, proceedings cannot be continued. The following extract is relevant: "It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field, which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted by the proviso and to no other. The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is to confine to that case. Where the language of the main enactment is explicit and unambiguous, the proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it, by implication what clearly falls within its express terms. The scope of the proviso, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a routine fashion. The reason being, at that stage, "the question is one of mere proprieties involved in the exercise of judicial discretion by the court and not of any rights concretised in favour of the accused". The following paragraph is relevant and is, therefore, extracted hereunder: "Therefore, it is to be only seen as to whether the trial court has judiciously and judicially exercised its discretion. The trial court as also the High Court, seem to have properly applied their minds by going into the nature of the documents sought to be summoned, their bearing and relevance for the nature of consideration to be made at that stage of the proceedings before the special judge as well as the necessity and desirability whereof. The consideration so made by the courts below in rejecting the claim of the appellant, could not be held to be either condemnable or constitute any gross or improper failure to exercise their jurisdiction and consequently, it does not call for any interference in our hands." The orders impugned in these revisions show that the learned magistrate has considered all the submissions made by both sides, has framed the questions for consideration, has de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a court could come to the conclusion that commission of the offence is a probable consequence, a case for framing of charge exists. To put it differently, if the court were to think that the accused might have committed the offence, it can frame the charge, though for conviction the conclusion is required to be that the accused has committed the offence. It is apparent that at the stage of framing of a charge, probative value of the materials on record cannot be gone into; the materials brought on record by the prosecution has to be accepted as true at that stage." This course has been followed by the learned magistrate; and even if there be a different opinion, that is no ground for the High Court to interdict the trial-vide in Stree Atyachar Virodhi Parishad v. Dilip Nathumal Chordia [1989] 1 SCC 715. It is difficult to hold that the trial magistrate had conducted himself either unreasonably or unjudiciously. It is, no doubt true, the counsel for the petitioners strenuously urged that the learned magistrate had not considered whether the accused was "in charge of the business of the firm"; the learned magistrate had also not considered the outcome of the proceedings before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conviction will have to follow if the prosecution has proved the other factors, namely non-filing of the returns, under the circumstances spelt out in the section. It is not open to the magistrate to conduct a mini trial at this stage and to conclude that no case is made out. There is nothing in the impugned order to indicate that the learned magistrate has accepted word-for-word, the case of the prosecution and had acted as a post office. At this stage, even a very strong suspicion founded upon materials before the magistrate which lead him to form a presumptive opinion as to the factual ingredients constituting the offence alleged may justify the framing of charge-vide R. S. Nayak v. A. R. Antulay [1986] AIR 1986 SC 2045. In that case, the Supreme Court considered the scope of sections 227, 239 and 245 of the Code of Criminal Procedure and held that in spite of the difference in the language of the three sections, the legal position is that, if the trial court is satisfied that a prima facie case is made out against the accused, charge has to be framed. Similarly, in Union of India v. Prafulla Kumar Samal, AIR 1979 SC 366, the Supreme Court observed as follows: "A magistrate h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole, the factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking." On the side of the petitioners, elaborate arguments were advanced as to the total misconception of the provisions of the Partnership Act by the learned magistrate, who had held that there was no such thing as a dormant partner and the various extracts from the evidence recorded by the learned magistrate in the discharge petitions were also referred to, to show that prosecution ought not to have been initiated against the first and the second petitioners. But this is a matter to be considered at the time of trial. It has been so held in Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558 (Mad): "The fact that the Tribunal has passed an order of remand in assessment proceedings would not be a bar to prosecution for offences under the Income-tax Act. Mere expectancies should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dismissed. The Supreme Court observed as follows: "A person who is sought to be made the accused has no right to produce any documents or evidence in defence at that stage. Even at the stage of framing of charge, the accused has no such right and a magistrate cannot be asked to look into the documents produced by an accused at that stage." With regard to the satisfaction of section 141, the Supreme Court held thus: "Even a non-director can be liable under section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial... It is necessary to specifically aver in a complaint under section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of the business of the company. This averment is an essential requirement of section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of section 141 cannot be said to be satisfied." It was observed by the Supreme Court that for the purpose of fasten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. Therefore, both sides will have to prove their case at the time of trial. Arguments were also advanced with regard to the validity of the sanction. The sanction order has also been produced in the paper book furnished by the petitioners. It was dealt with threadbare by the learned counsel for the petitioners. In Mansukhlal Vithaldas Chauhan v. State of Gujarat [1997] 7 SCC 622, a sanction order was challenged. Several important principles can be culled out from this decision and they are that-(a) it is not an automatic formality; (b) public interest should be kept in mind; (c) it is a weapon to ensure discouragement of frivolous and vexatious prosecution; (d) it must ex facie disclose that the authority had considered the evidence and other materials; (e) the authority has to apply its own independent mind; and (f) it should not be under pressure from any quarter. Tested against these guidelines, the Supreme Court, in that case, held that the sanction order was bad because the sanction order was given by the secretary on the direction of the High Court to grant sanction. Therefore, the Supreme Court held that the High Court closed all other alternatives to the secretary. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, as the case may be, and they are discussed hereunder. Guru Nanak Enterprises v. ITO [2005] 279 ITR 30 (SC); [2005] 10 SCC 451 was a case where there was delayed filing of income-tax return and it was held therein that it was covered by the proviso to section 276C and there was failure to furnish the return in due time. In the present case, no return has been filed. Similarly, Gopalji Shaw v. ITO [1988] 173 ITR 554 (Cal) was a case where the petitioner had filed the return on February 15, 1985, instead of July 31, 1982. In that case, penalty proceedings under section 271(1)(a) were initiated against the petitioner for delay in filing the return, but no order had been passed and therefore, the learned judge of the Calcutta High Court held that this meant that the Income-tax Officer did not find any reason to penalise the petitioner for the delay in filing the return and that when the Officer, while making the assessment, charges interest under section 139(8), no criminal proceedings can be launched since wilful default in filing the return has to be established and by charging interest, the Officer had impliedly extended the time to file the return and therefore, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be discharged. In ITO v. Inderjit Chopra [1997] 224 ITR 691, the Punjab and Haryana High Court held that where penalty under section 271(1) (c) of the Act was quashed by the Tribunal on the finding that there was no concealment of income by the assessee, there was no justification for prosecution of the assessee and the same must, therefore, be quashed. The gravamen of the charge in the complaint filed against the respondent in that case is concealment of income and/or furnishing of inaccurate particulars by the respondent for the assessment year 1980-81 and on the same facts, penalty orders were quashed. When admittedly penalty orders had been quashed on the footing that there is no such concealment of income, there is no justification to proceed with the prosecution of the respondent on the same ground. To the same effect is Mahadeo Lal Agarwala v. State of Bihar [1997] 224 ITR 119 (Patna), which also deals with proceedings under section 271(1)(c). The Supreme Court, in that case, held that the prosecution cannot be sustained since the question whether the appellant/assessee had made a false statement had been concluded by the finding of the Appellate Tribunal. Sureshchand Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6CC and 277 of the Income-tax Act are liable to be quashed while assessment proceedings under the Act are pending was considered by the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC); [1984] Supp. SCC 437, the question was whether prosecutions or offences punishable under sections 276C and 277 of the Income-tax Act are liable to be quashed while reassessment proceedings under the Act are pending. The Supreme Court observed thus: "No other legal bar for the institution of the proceedings is urged except stating that in the event of the petitioner being exonerated in the reassessment proceedings, the prosecutions may have to be dropped. It is true that as observed by this court in Uttam Chand v. ITO [1982] 133 ITR 909 the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under section 276C and section 277 as long as some proceeding under the Act in which there is a chance of success of the assessee is pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the constitutionality of the provisions of the Foreign Exchange Regulation Act (FERA) was challenged, the Supreme Court rejected the contention that without there being an adjudication, there can be no prosecution. The Supreme Court distinguished the decision in K. C. Builders's case [2004] 265 ITR 562 (SC) and in fact, observed that the decision in K. C. Builders's case [2004] 265 ITR 562 (SC) may require reconsideration as the reasoning appears to run counter to the one adopted by the Constitution Bench in Collector of Customs (Assistant) v. L. R. Melwani [1969] 2 SCR 438. In Collector of Customs (Assistant) v. L. R. Melwani [1969] 2 SCR 438; AIR 1970 SC 962, one of the questions was, whether the prosecution is barred under article 22 by reason of the decision of the Collector of Customs in proceedings initiated under the Sea Customs Act. The Supreme Court held that criminal prosecution of the accused for the alleged smuggling is not barred merely because proceedings were earlier initiated against him before the Collector of Customs, which ended in his favour. In Dr. Mrs. M. S. Dhowani v. J. Ranganathan, Second ITO [1992] 194 ITR 690 (Mad), a learned single judge of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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