TMI Blog1994 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement computing the total income at Rs. 2,41,695. But during 1987-88, the Income-tax Officer, suspecting the correctness of the amount, issued notice to the first accused and also their seller, Messrs. Addison and Company, for production of their account books for verification of the purchases. Thereafter, the accused filed the revised statement for the additional income of Rs. 4,80,420 stating that a mistake was found out in totalling the amount of Messrs. Addison and Co. Ltd., and, therefore, they were offering the additional income for assessment. As the assessee did not reveal the actual income for 1986-87, penalty proceedings were initiated and the complaint in C. C. No. 143 of 1991 was filed before the Additional Chief Metropolitan Magistrate (E. O. II), for the abovementioned offences. Similarly, for 1987-88 also, though the return was filed declaring the income at Rs. 2,93,960, after the notice to the accused and Messrs. Addison and Co. Ltd., the accused persons filed revised returns admitting an additional income of Rs. 4,18,220. Therefore, for this concealment also, C. C. No. 144 of 1991 was filed in the same court for prosecution under the abovementioned offences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... injunction restraining him from filing a complaint, that the discrepancy in the account was a bona fide mistake, that the complaints against them will amount to abuse of the process of the court that, further, all the partners are not in charge of the affairs of the firm and, therefore, the complaints are not maintainable against all of them. So, on these grounds, the petitioners sought for quashing the proceedings. Even though interim injunction was passed in the above writ petition, the complaints were filed even before the filing of the writ petition. Subsequent to the filing of these petitions, the Income-tax Appellate Tribunal has quashed the penalty proceedings accepting the contention of the petitioners that the discrepancy in the income is a bona fide mistake in totalling the amount. Therefore, now the main ground in these petitions for quashing the proceedings is the order of the Income-tax Appellate Tribunal setting aside the penalty proceedings. Therefore, the two points that were urged for determination are: (1) whether all the petitioners were not in charge of the firm so that they could not be prosecuted; and (2) whether the order of the Income-tax Appellate Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st all the accused partners. When it is alleged that all of them had conspired together to inflate the credit bills of Messrs. Addison and Co. Ltd., it cannot be stated that all the partners were not in charge of the administration of the firm. Therefore, the first contention raised by learned counsel for the petitioner deserves to be rejected. The second contention is the most vital and important argument of this case. The Income-tax Officer imposed penalty for concealment of income during the years 1986-87, 1987-88 and 1988-89. On appeal before the Income-tax Appellate Tribunal in Income-tax Appeals Nos. 119, 120 and 121/(MDS) of 1991, dated November 20, 1992, the Tribunal has found that there was no concealment of the income, that the mistake in the account was unknown to the partners of the firm, that as it was a bona fide mistake it was not possible to hold that there was concealment of income and on this finding the penalties imposed on the assessees were cancelled. Learned counsel for the petitioner, relying upon the order of the Tribunal, contends that the fact-finding authority under the Act, viz., the Tribunal, itself has held that as the mistake in the account was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the authorities under the Act and the other by the court functioning outside the purview of the Income-tax Act, have their independent findings on the matters before them and, therefore, the finding of the authority under the Act will not bind the judicial proceedings of the court. On this basis, Mr. Ramaswami would contend that these petitions are not sustainable and have to be dismissed. It is true that in K. A. Khaja v. Sixth ITO [1992] 196 ITR 627 (Mad), Arunachalam J., has held that without sufficient prima facie allegations in a complaint against the accused person the inherent powers of the High Court cannot be exercised to stultify the prosecution that can be initiated for the offences under sections 276C and 277 of the Income-tax Act. The learned judge has taken the same view in another case in P. M. Subramaniam v. P. C. Chadaga, Asst. CIT [1992] 195 ITR 910 (Mad). In that case also, the learned judge has observed that when it is disclosed in the complaint that the two accused persons, who were partners of the first accused firm, conspired along with the other accused to wilfully evade tax, defraud the exchequer of its legitimate revenue and deceive the concerned Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365, wherein the Supreme Court has held that the Income-tax Appellate Tribunal is a fact-finding authority under the Act and that the court has no jurisdiction to go behind the statements of fact made by the Tribunal in its separate order. That was a case in which the appellant, which dealt in automobiles and spare parts, had subscribed to certain Government loans, sustained a loss in the business and had claimed that the loss was a revenue loss. The Tribunal found that the loss suffered by the appellant on the sale of the investment was a revenue loss. On a reference to the High Court, the High Court held that as the investment was not connected with the orders placed by the Government, it was not a loss of revenue but was only a capital loss. In that connection, the Supreme Court observed (at page 367): " . . . . We think the High Court fell into serious error in doing so. It is now well-settled that the Appellate Tribunal is the final fact-finding authority under the Income-tax Act and that the court has no jurisdiction to go behind the statements of fact made by the Tribunal in its appellate order. The court may do so only if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the Commissioner (Appeals) deleted the addition of income accepting the original return filed by the assessee, the criminal court cannot find him guilty of submitting false returns and, therefore, the proceedings before the criminal court were liable to be quashed. The Andhra Pradesh High Court also has taken the same view in M. Murali Mohan v. State (ITO) [1987] 168 ITR 729. In that case, the assessee had introduced fictitious purchases of yarn in the books and the Income-tax Officer made additions to the income on the ground of suppression of the income. A complaint was lodged against the assessee under sections 277 and 278 of the Income-tax Act and sections 193 and 196, Indian Penal Code. But the Appellate Assistant Commissioner set aside the order of the Income-tax Officer cancelling the additions. When the matter was taken up before the Andhra Pradesh High Court, it was held that when the assessment itself was set aside by the Appellate Assistant Commissioner, it could not be said that the assessment still continued in the eye of law and when the assessment itself was not in existence, the question of maintaining the prosecution did not arise and, therefore, the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The learned judge felt that as the Commissioner of Income-tax had set aside the penalty proceedings and remanded the matter, the complaint on the allegation of suppression of income was without any basis and, therefore, the Income-tax Officer, may file the complaint after the final position of the authorities under the Act. From the direction given by him to withdraw the complaint, he has expressed the view that weight must be given by the criminal court for the order of the Tribunal. Therefore, based on these views of the different High Courts and the Supreme Court, it is argued by learned counsel for the petitioner that the complaints against the petitioners before the Additional Chief Metropolitan Magistrate have to be quashed. To counteract the above argument, learned counsel for the respondent, Mr. Ramaswamy, has cited a few decisions which I am referring below. In S. R. Arulprakasam v. Smt. Prema Malini Vasan, ITO [1987] 163 ITR 487, this court has held that the filing of the revised return will not exonerate the criminal proceedings and penalty proceedings against the assessee. In that case, the assessee himself filed a revised return after the concealment had been detect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or imposing penalty and, therefore, the order of the Tribunal was not correct and was liable to be set aside. When this matter was taken up before the Supreme Court, the Supreme Court cited a statement in Corpus Juris Secundum, Vol. 85, page 580, paragraph 1023, with approval, as follows : " A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. " Accordingly, the Supreme Court held that the confirmation of mens rea was not required to be proved in the proceedings taken by the Income-tax Officer under section 271(1)(a) of the Income-tax Act, against the assessee. The point considered in that decision was whether the criminal intention of the assessee has to be proved for imposing penalty under the Act. Therefore, that decision also has nothing to do with the point in issue. Another decision relied upon by learned counsel for the Income-tax Department is Universal Supply Corporation v. State of Rajasthan [1994] 206 ITR 222, a decision of the Rajasthan High Court. The employer therein had deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir chance of success, he sought the criminal prosecution to be quashed. For the above contention, the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 has held that there is no provision that the prosecution cannot be launched until assessment proceedings are completed and in the criminal proceedings the ingredients of the offence have to be established to continue the prosecution. While disposing of this appeal, the Supreme Court has made certain observations which are very much relevant to this case. The observations are as follows : " A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under sections 276C and 277 of the Act. In the criminal case all the ingredients of the offence in question have to be established in order to secure the conviction of the accused. The criminal court, no doubt, has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have to refer to the view of the Supreme Court in Patnaik and Co. Ltd v. CIT [1986] 161 ITR 365, which I referred to above. The Supreme Court has accepted that the findings of the Income-tax Appellate Tribunal on the facts are final and the court has no jurisdiction to go behind the statements of fact made by the Tribunal. Therefore, the criminal court is bound to accept the findings of the Tribunal on questions of fact. The Tribunal in its order has held that the assessees did not attempt to conceal the amount as they themselves produced the registers for verification and that the person who made the mistake, viz., the accountant was dead and, therefore, the mistake in the return was unknown to the partners of the firm making it a bona fide mistake. In the view of the Tribunal, the partners were not aware of the mistake in the return of assessment as the returns were prepared by the inexperienced accountant after the death of the previous accountant who wrote the accounts. In my considered view, as the Tribunal has concluded that the mistake was not known to the partners, this finding on fact has to be accepted by the court which deals with the criminal prosecution of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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