TMI Blog2005 (2) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing partner, the second petitioner. Along with the return, profit and loss account and balance-sheet were also filed. The income from the contract business declared in the return was Rs. 1,22,460. The Income-tax Officer verified the return as well as the books of account. The accounts of the firm had shown credits in the name of C.V. Jacob, P.C. David, T.V. Devassia, P.T. Varghese, N.A. George and Saramma Varghese. The Income-tax Officer on verification found that Rs. 1,65,000 so shown is not genuine credit and therefore, treated it as income from other sources liable for income-tax. Holding that the petitioners concealed the said income which is liable for payment of an income-tax of Rs. 28,800 directed the petitioners to pay the income-tax for the same. Proceedings were also initiated under section 271(1)(c) of the Income-tax Act. A penalty of Rs. 1,30,000 was levied under section 271(1) (c) and a complaint was lodged before the learned Magistrate for the offences under sections 276C(1)(ii) and 277(ii) of the Income-tax Act. The petitioners pleaded not guilty. Prosecution examined eight witnesses and marked exhibits P1 to P17. On the side of the petitioners exhibits D1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing counsel for taxes. The advocate Sri Kochunni Nair relied on the decision of the apex court in K.C. Builders v. Asst. CIT [2004] 265 ITR 562 and the decision of the Punjab and Haryana High Court in Sudarshan Jain v. Asst. CIT [2004] 270 ITR 312 and also the decision of this court in Premier Breweries Ltd. v. Deputy CIT [1994] 207 ITR 871; [1994] KLJ Tax Cases 143 and argued that by the cancellation of the penalty imposed under section 271(1)(c) of the Income-tax Act, the very foundation of the prosecution has been taken away and therefore the petitioners are to be acquitted as there is no concealment of income or filing of any false returns or statements. Consequently it was argued by learned counsel that even if prosecution would lie in spite of the order of cancellation of penalty imposed, all the prosecution witnesses supported the petitioners and therefore, there is no evidence to prove either of the offences and therefore on that ground also conviction is to be set aside. Finally, it was argued relying on the decision in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) that in any event there is no culpable mens rea and the amended section 278E of the Income-tax Act which ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omitted by the Finance Act, 1988). Section 56 deals with income from other sources. Under sub-section (1) of section 56, income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads in section 14. Section 68 deals with cash credits. That section provides where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Chapter XIV deals with procedure for assessment. Under section 139, every person being a company shall furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Section 143 deals with assessment. Under sub-section (1) of section 143, where a return has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and levied a penalty of Rs. 1,30,000 under section 271(1)(c) on the ground that there was concealment of income. The petitioners challenged that assessment and levy before the Commissioner of Income-tax (Appeals). Under exhibit D5 order the addition of Rs. 1,65,000 as the income from other sources was confirmed stating that the explanations offered by the creditors were unsatisfactory. But holding that mere rejection of the explanation and the confirmation letters about the credit would not justify imposition of penalty under section 271(1)(c) for concealment of income it was cancelled on the ground that the explanation offered by the assessee was bona fide and whatever was available was furnished. The first respondent challenged that order before the Income-tax Appellate Tribunal. As per the order produced by the revision petitioners under Crl. Appl. No. 1017/05, with a prayer to receive it as additional evidence the Income-tax Appellate Tribunal confirmed the order cancelling the penalty levied under section 271(1)(c). The petitioners were prosecuted for the offence under sections 276C(1)(ii) and 277(ii) of the Income-tax Act. Section 276C(1)(ii) reads: "(1) If a person wilf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under sub-section (1) of section 142 or (c) sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142 or has concealed or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty a sum of Rs. 10,000 in the case of failure as contemplated under clause (b) and a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income under clause (c). Therefore, the penalty provided under section 271(1)(c) is not only for concealment of the particulars of the income but also for furnishing inaccurate particulars of such income. Section 271(1)(c) reads: "271.(1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty." The Assessing Officer was not satisfied with the explanation off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cution cannot be sustained in view of the cancellation of the levy of penalty under section 271(1)(c) of the Act were considered. In Didwania's case [1997] 224 ITR 687 (SC), the assessing authority had held that the assessee had intentionally concealed his income derived from company "Y" which belonged to him and prosecution was initiated against him. The assessee filed an appeal against the assessment order and the Tribunal set aside the assessment holding that there was no material to hold that "Y" company belonged to the assessee. The assessee thereafter filed a petition before the magistrate to drop the criminal proceedings. When it was dismissed, he challenged it before the High Court. When it was dismissed, assessee approached the High Court under section 482 to quash the criminal proceedings which was dismissed. It was taken before the apex court in an appeal. The Supreme Court held that the whole question was whether the appellant made a false statement regarding income which according to the assessing authority had escaped assessment and so far as this issue was concerned, the finding of the Appellate Tribunal was conclusive and hence, the prosecution cannot be sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned Magistrate and, the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality, to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable." The argument of the advocate Sri Ravindranatha Menon is that the said principle is not applicable to a case where the assessment order is not set aside and only penalty is set aside and in any case it would only affect the prosecution under section 276C(1) and not under section 277. The argument of learned counsel is that the offence under section 276C is in respect of an attempt to evade tax by concealing the income and it may not survive once the order of assessment is set aside and the offence u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Ram Wadhwa v. ITO [1984] 145 ITR 109 (P H) where similar prosecution proceedings were quashed holding that there is no reasonable prospect of a criminal case ending in conviction, as the basis for the criminal prosecution is taken away by the cancellation of the order levying penalty, this court quashed the proceedings. The position is identical in this case. Though in the assessment order Rs. 1,65,000 was treated as income from other sources of the revision petitioners, the appellate authority as well as the Income-tax Appellate Tribunal in unambiguous terms found that the explanation of the assessee for not showing Rs. 1,65,000 as income and instead showing it as cash credits was for a plausible explanation and in any event it cannot be treated as a mere fanciful explanation. It is on that basis the order levying tax was cancelled which was affirmed by both the appellate authority and the Income-tax Appellate Tribunal. Consequent to the said finding the petitioners are entitled to contend that they did not make a false statement or deliver a false statement or account as contemplated under section 277 of the Income-tax Act. When the order cancelling the levy of penalty is app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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