TMI Blog1998 (10) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of tax, which would be due. The accused, aggrieved by the order of assessment passed by the Income-tax Officer for the assessment year 1979-80, preferred an appeal in I.T. Appeal No. 96/82-83, before the Commissioner of Income-tax (Appeals)-II, Madras. The authority, by its order dated September 22, 1992, held that the matter requires reconsideration in the light of the evidence sought to be let in before him as some witnesses examined by the Assessing Officer seem to have retracted from the earlier stand and that it would be just and proper for the Assessing Officer to, allow the first accused to have an opportunity to examine the witnesses and cross-examine them. In view of the order of the appellate authority, remitting back the assessment and directing the Assessing Officer to reframe the assessment, the prosecution launched in respect of the assessment is unjustified and unwarranted since the continuance of prosecution will be an abuse of process of law. As the prosecution has been launched solely on the basis of the assessment order for the assessment year 1979-80, since then the assessment order has been set aside by the Commissioner of Income-tax (Appeals-II), the ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1979-80 and that the appeal preferred is not with reference to the assessment year 1979-80. Again and again, the lower court has observed that the accused have not preferred an appeal against the assessment order for the assessment year 1979-80. Again, it has stated that the complaint has not been launched for the assessment order for the year 1979-80. It is also observed that the appellate authority has not decided the assessment for the year 1979-80. Thus, the lower court has simply chosen to decide the matter obviously on an erroneous basis that the appellate authority has not decided about the assessment order for the year 1979-80 and that the appeal was not preferred against the order for the assessment year 1979-80. From the case of the parties here, it is clear that it is with reference to the assessment year 1979-80, the complaint has been given. The Commissioner of Income-tax has very clearly stated in his order that the order of assessment is for the year 1979-80, which was the matter in appeal before him. Both the accused and the Department are agreed that aggrieved by the order of assessment for the year 1979-80, the accused preferred the appeal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accessories was entrusted to certain persons and they paid against the bills and vouchers produced by those persons. Therefore, he passed an assessment order for the year 1979-80, on September 17, 1982, determining the total income at Rs. 2,20,430 as against a loss of Rs. 1,26,120 returned by the first accused. He determined under section 41(2) the profit on the sale of three units of printing machinery at Rs. 1,50,267 and long-term capital gains on the sale of the printing machinery at Rs. 44,645. The Income-tax Officer issued a penalty notice for concealment of income under section 271(1)(c) of the Income-tax Act, 1961. In the penalty proceedings, the petitioners approached the Settlement Commission, which rejected the petitioners' request for the assessment year 1979-80. Hence, the Department filed the complaint, alleging that with a view to evade income-tax and to defraud the exchequer of its legitimate revenue and to mislead and deceive the Income-tax Officer, all the accused have conspired together and committed the offence of fabrication of false evidence in the form of false cash book, ledger and bogus vouchers with the intention to use them as genuine evidence to deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission on the basis of the appellant's petitions. It is thus clear that an enhancement is called for having regard to the order of the Commission. 4. The appellant has also objected to the aforesaid additions under section 41(2) and towards long-term capital gains on the sale of the assets. It has been contended that the Assessing Officer was not justified in holding that the appellant did not acquire additional machinery for Rs. 1,87,500 and also in rejecting the appellant's explanation in regard thereto. Learned counsel submitted before me fresh evidence and contended that the enquiries were made by the Assessing Officer behind the back of the appellant and the latter was not given a proper opportunity to cross-examine the witnesses on whose statements the Assessing Officer placed reliance. Learned counsel sought to submit the affidavits of certain persons, who retracted from the stand they had taken before the Assessing Officer. According to learned counsel, in the light of the confirmation obtained by the appellant from the sellers/job workers in respect of the machinery, the additions towards profit under section 41(2) and long-term capital gains should be deleted. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint discloses that the Income-tax Officer made certain enquiries and came to the conclusion that the vouchers produced, 39 in number, were bogus vouchers and that no such expenditure was incurred at all by the assessee. The appellate authority's order is to the effect that the examination of the witnesses by the concerned Income-tax Officer was behind the back of the assessee and the assessee must be given an opportunity to cross-examine the witnesses more so when some of the witnesses have retracted the statements given by them. The complaint thus, arises out of an assessment made for the year 1979-80. The basis for the assessment order is the investigation said to have been made by the Income-tax Officer concerned. That assessment order has been set aside. Necessarily, it would mean that this investigation which is said to have been made by the Income-tax Officer, on the basis of which the assessment was made, is not accepted by the concerned authority, viz., the appellate forum. The appellate forum does not agree with the result of the investigation. It felt necessary that an opportunity should be given to the assessee to cross-examine the persons said to have been examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action is neither visible nor persists. In this connection, it is necessary to refer to the rulings cited by learned counsel for the petitioner in the decision reported in Didwania (G.L.) v. ITO [1997] 224 ITR 687 (SC), in which, the Supreme Court has observed as follows: "In the instant case, the crux of the matter is attracted and whether the prosecution can be sustained in view of the order passed by the Tribunal. As noted above, the assessing authority held that the appellant-assessee made a false statement in respect of income of Young India and Transport Company and that finding has been set aside by the Income-tax Appellate Tribunal. If that is the position then we are unable to see as to how criminal proceedings can be sustained... The whole question is whether the appellant-assessee made a false statement regarding the income which according to the assessing authority has escaped assessment. So far as this issue is concerned, the finding of the Appellate Tribunal is conclusive. Therefore, as held in Uttam Chand's case [1982] 133 ITR 909 (SC), the prosecution cannot be sustained. Accordingly, the proceedings are quashed and the appeal is allowed." Here, in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without a trace the original assessment proceeding. I have to distinguish the cases relied upon by counsel for the Department on the following grounds: Those are cases where some part of the assessment had become final. Here, the entire assessment has been set aside. The return has not been accepted and the assessment has been made on the ground that the vouchers produced to show the incurring of expenditure and purchase of spare parts are bogus. It is on the basis of these conclusions arrived at by the Income-tax Officer, the assessment order has been passed by him. The Appellate Tribunal has set aside the same. The Income-tax Officer has been asked to conduct a fresh enquiry, giving an opportunity to the assessee to cross-examine the witnesses on the ground that many of the witnesses have retracted from their statements. Therefore, the basis for the Income-tax Officer to conclude that there has been suppression of material particulars and filing of false return is no longer there. It is only after a fresh assessment or after holding a fresh enquiry, that any such finding can be arrived at. Therefore, the matter has been remitted by the Appellate Commissioner of Income-tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two years from the end of the assessment year in which the income was first assessable; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or sub-section (5) of section 139, whichever is later. Sub-section (2): No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of two years from the end of the financial year in which the notice under section 148 was served." Section. 142 of the Income-tax Act sets out the time limit for issuing notice. Here in this case, as on the date of filing of the complaint or as on the date of filing of the criminal O. P., no assessment has been done nor any notice has been given. Though the Appellate Tribunal directed the Assessing Officer to make a fresh assessment and the order of the appellate authority has been passed as early as on September 22, 1992, the assessment has not been made nor any notice of fresh assessment as required by the appellate order has been issued. Till the date, when, the arguments of learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, one has to see whether there is any basis to proceed against the petitioners. Suppose the Department, after reassessment, in pursuance of the direction by the Appellate Tribunal once again comes to the conclusion that the vouchers and receipts produced by the assessee are fabricated, then definitely it will be a proper ground for the Department to initiate proceedings under the Indian Penal Code and the Income-tax Act, viz., under section 276C(1) or 277 of the Act. Until that stage is reached, in the facts and circumstances of the case, it is not possible to say that there is some basis to proceed against the petitioner before the criminal court of law. As it is, there are no materials, for the simple reason that the materials upon which the assessing authority founded its order of assessment are not there. Further, the conclusion of the assessing authority with regard to the same has not been accepted by the appellate authority which has directed the authority concerned to conduct a fresh assessment. Therefore, only after holding an enquiry, it will be open to the assessing authority and possible for the assessing authority to decide whether, in fact, these vouchers and rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 153(3)(ii). On further appeal, the Tribunal held that section 153(3)(ii) could not apply because there was neither a finding nor a direction in the earlier order of the Appellate Assistant Commissioner and further that the Appellate Assistant Commissioner could not convert the assessments made under section 147(a) into those under section 153(3)(ii). The matter was referred to the High Court to decide whether the Appellate Assistant Commissioner was justified in holding that the provisions of section 147(a) were not applicable, and whether the provisions of section 153(3)(ii) were not applicable, and the High Court held that the provisions of section 155(3) were applicable and observed that the Appellate Assistant Commissioner's finding that the properties did not belong to the firm, and, therefore, the excess amount of the cost of construction could not be regarded as the income of the firm, was a finding which was necessary for the disposal of the firm's appeals and as a corollary it was held that the buildings belonged to the co-owners and this necessiated the direction to the Income-tax Officer that he was free to assess the excess in the hands of the co-owners. On appeal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their different averments at different stages. As the assessment is being remitted back to the Assessing Officer, the other objections are not taken up for consideration. The Assessing Officer is directed to reframe the assessment having due regard to the order of the Settlement Commission and the fresh evidence sought to be let in in respect of the sale of the machinery. In the result, the assessment is set aside." Thus, the above order clearly shows that the Appellate Tribunal has set aside the entire assessment which was based upon the opinion of the Assessing Officer. In view of the submission made before the Commissioner of Income-tax (Appeals)-II, the Commissioner held that it is, therefore, proper for the Assessing Officer to allow the appellants the opportunity to examine the witnesses and then cross-examine them to ascertain the veracity of their different averments at different stages and, therefore, he has remitted back the assessment to the officer setting aside the assessment and directing the officer to reframe the assessment having due regard to the order of the Settlement Commission and the fresh evidence sought to be let in in respect of the sales of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade at all. Hence, the above ruling cannot apply. The case reported in Rinkoo Steels v. K. P. Ganguli, ITO [1989] 179 ITR 482 (Delhi) related to a complaint which was not based on the return or original assessment but on materials discovered in a search, containing false statements and entries. Hence, it cannot apply to the case on hand. The ruling reported in Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558 (Mad) was of course a similar case. But, after the remand, the Inspecting Assistant Commissioner of Income-tax confirmed the earlier assessment, for despite the opportunities given, the assessee did not produce evidence to show that the shares said to have been purchased from persons. But, here the matter is still at large. That the vouchers are bogus is yet to be decided. The facts of the case in G. S. R. Krishnamurthi v. M. Govindaswamy, ITO [1992] 195 ITR 137 (Mad) are quite different. There the karta of an undivided Hindu family purchased a property for Rs. 14,11,000, but declared the sale consideration at Rs. 5,86,000. The accused filed a final return for the relevant assessment year 1982-83, on November 15, 1983, declaring the sale consideration at Rs. 5,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etracted their statements. The assessees were not given an opportunity to cross-examine them. The statements were recorded in the absence of or behind the back of the assessee. Hence, the assessment was set aside. Therefore, the basis for complaint was the subsequent knowledge or opinion gathered after the submission of the return. It was so gathered without the knowledge of the assessee and without giving an opportunity. Therefore, the charge or accusation that a false return was filed was not on the strength of any inherent and intrinsic materials that were available on the face of the return nor was it so apparent. Thus there is no independent evidence. As regards the ruling reported in Associated Industries v. First ITO [1983] 139 ITR 269 (Mad). It was a prosecution laid as an outcome of the assessment order, it cannot be stated in the circumstances of the case that the criminal proceedings are independent of the assessment order. The cause of action flowed only from the enquiry made by the Assessing Officer for the purpose of assessment. Hence, the above ruling cannot apply. Thus, there is no finding as on date that the allegations upon which the complaint is laid are true. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear distinction between chargeability and assessability. The former expression connotes liability to pay income-tax; while the latter expression has reference primarily to the machinery, which ought to be utilised and the procedure that must be followed in determining the amount which should be levied as income-tax. Here, by reason of the order of the Commissioner, the machinery sought to be utilised to determine the amount which should be levied as income-tax, does not exist. In other words, as it is, there is no machinery that would make it possible for the income-tax authorities to assess the income, profits or gains of the company during the assessment year 1979-80. The question of assessability would arise only if the machinery exists there. Since there is no machinery existing there in that, no step has been made pursuant to the order of the Commissioner to assess the fresh enquiry. The decision reported in Madras Vanaspati Ltd. v. S. Subramanian, ITO [1989] 175 ITR 172 (Mad), is in respect of a case where it was held that when certain offences are committed, which on the very face constitute offences with reference to the documents, the mere fact that the assessment has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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