TMI Blog2018 (10) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... gular assessment is taxed as undisclosed income in the block assessment. Even it was pleaded that there was no willful attempt to evade any tax so as to bring provisions under Section 276 (c) (i) of the Act and immunity granted by Section 158 BF from levy of interest and penalty under Section 271 (1) (c), 271 (A), 271-B of the Act. No mention of Section 276-C in Section 158BF of the Act and, as a matter of fact, a careful reading of Section 276-C transpires that if a person willfully admits to evade any tax, penalty or interest chargeable or imposable under the Act, 1961 then only prosecution can be launched. None of the authorities gave clear finding about evading tax willfully and on the contrary deduction was given under Section 80IA by ITAT Bench to the extent of ₹ 99,900/-. A company having past turnover and shown in third annual report 1995-96, C.I.F. value of imports of row-material and capital goods to be considered in quantity, it was 6138.894 for the value of ₹ 7,24,23,783/-. Minor lapse on the part of the assessee of not mentioning such a stock, undisclosed income in the facts of this case do not attract launch of prosecution under Section 276-C (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contend that order dated 23.1.2012 passed in Special Criminal Application No.528 of 1999, in which various contentions raised in the present application and certain case laws vis-a-vis provisions of the Income Tax Act, 1961 never fell into consideration of the Court and, therefore, straightway dismissal of Special Criminal Application No.528 of 1999 shall have as such no bearing on the present proceedings and it is to be heard on its own merits. 5. At the time of hearing of this application, a xerox copy of the Death Certificate dated 25.1.2011 issued by the competent authority of Municipal Corporation of Greater Mumbai about death of applicant no.2, Mr.Nagin Radhakishan Agrawal, which took place on 7.1.2011, is produced on record and, accordingly, this application stands abated qua petitioner no.2 herein. 6. Brief facts of the case:- 6.1 Petitioner no.1 is a public limited company and petitioner nos.3 to 7 are Directors of petitioner no.1 company. Respondent no.1, Joint Commissioner of Income Tax, has filed Criminal Case No.2105 of 2000 in the Court of learned Chief Judicial Magistrate, Surat, upon sanction accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the said assessment year was framed u/s. 143(3) of the Act and order determining the total loss of ₹ 5800733/- was passed on 12.5.1998. (6) The return of income for A.Y. 96-97 was filed on 30.11.1996 declaring total income of ₹ 69890/-. The return of income was signed and verified by Shri. R.N. Aagarwal, the accused No.2, the director of the accused No.1 within the knowledge of rest of the accused on 28.11.1995. The same was accepted u/s. 143(1)(a) on 28.2.1997. The assessment was taken for scrutiny u/s. 143(3) and the total income was determined at ₹ 148334/- vide order dated 26.3.1999. (7) The Search u/s. 132 of the Act was carried out at the business premises of the accused on 1.12.1995 which was finally concluded on 5.1.1996. The accused No. 1 company is one of the six companies of N.R. Agarwal Companies which were covered u/s. 132 of the Act. The accused during the course of Search proceeding did not make any true and correct disclosure of undisclosed income. The statement of accused No. 2 was recorded during the search proceedings. (8) In response to notice u/s. 158BC of the Act, the return fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d were in charge of and were responsible to accused No. 1 for the conduct of business of company and as such all the accused shall be deemed to be guilty of offences and shall be liable to be proceeded against and punished accordingly. Thus, it clearly establishes that all the accused have committed the offences punishable u/s. 276C(1), 277 rws 278B of the Act within the jurisdiction of this Honourable Court and therefore, the Honourable Court has jurisdiction to try, inquire and to hear the case. stock of imported waste worth and ₹ 168000/- being the value of stock of imported pulp lying in the factory premises of accused no. 1 at 169, GIDC, Vapi. 6.4 Thus, the case of the department is based on undisclosed income on account of excess of stock viz. imported waste worth and also of imported pulp lying in the factory premises and such undisclosed income for both the above together was ₹ 3,33,000/-. It is emphatically submitted by learned counsel for the applicants that though raid was carried out on the business premises of petitioner no.1 and resident of directors on 1.12.1995, at the relevant point of time a new Chapter XVIB was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143 recorded no findings in the assessment orders about concealment of income or furnishing of inaccurate particulars and, therefore, even proceedings under Section 271 (1) (c) ought not to have been started. Besides the complaint is not in respect of concealment in the block return. The fact is that the complaint is in respect of omission in return under Section 139 and not in the block return. 9. Learned counsel for the applicants relied on various decisions including that in the case of A.C.I.T. v. Velliappa Textile Mills Ltd. reported in 263 ITR 550 , wherein it was held that when punishment of imprisonment is compulsory, company cannot be proceeded against and the Supreme Court quashed and set aside the prosecution against the company under Section 276 (C) and 277 of the Act 1961. Further, none of the Directors had any concern with the conduct of the business of the company at the time of commission of offence and particulars regarding conduct of business and responsibility etc. was not stated in the complaint, apart from the averments made of general in nature and, therefore, it would be a travesty of justice to prosecute the directors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ker) . In the above case, offences were registered in the context of partnership firm and no specific allegations were made that partners were responsible for the conduct of business of the firm. It was held that complaint against the partners was not valid, however, criminal proceedings against the firm could continue. 13. Assistant Commissioner, Assessment-II, Bangalore and Others v. Velliappa Textiles Ltd. and Another reported in (2003) 263 ITR 550 (SC), wherein the Apex Court considered Section 279(2), 279, 278B, 278, 277, 276C of the Act 1961, wherein the Apex Court no doubt held that the grant of sanction is purely an administrative act and affording an opportunity of hearing to the accused is not contemplated at this stage and further as per majority view that each of the Sections viz. 276C, 277 and 278 read with Section 278B requires imposition of mandatory terms of imprisonment coupled with fine and leaves no choice to the Court to impose only fine and since it was difficult to impose punishment of fine in lieu of imprisonment on a company, the prosecution of the company could not be sustained. However, the third Honourable Judge consisting of the Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessable as income of the assessee. By referring to third annual report for the year 1995-96 of the petitioner no.1 company, it is submitted by learned counsel for the applicants that balancesheet of the company would reveal huge turnover and income from sales was approximately ₹ 32 Crores and increase in stocks was also around ₹ 21.30 Lacs and expenditure including raw materials and payment of excise duty, salary and other expenses was to the tune of more than ₹ 30 Crores, there was no reason for the assessee not to disclose such stock or to evade tax. Even otherwise CIF value of imports of raw material was around 6138 matric tonne for the above year. So stock worth even as per the asssessment order was of ₹ 3,33,000/- only. 17. Collectively, therefore, the impugned criminal proceedings launched by respondent no.1 by way of criminal case no.2705 of 2001 in the Court of Chief Judicial Magistrate deserves to be quashed and set aside. 18. As against above, learned counsel for the revenue would contend that keeping in view Special Criminal Application No.528 of 1999 which was admitted and interim relief granted therein and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f firm and discrepancy in stock was not properly explained and, therefore, prosecution of the assessee was justified. By relying on another decision of Madras High Court in the case of N.Athimoolam v. Income Tax Officer (2010) 327 ITR 603 (Madras), wherein it was held that de hors the orders setting aside the penalty proceedings by the Tribunal, the criminal proceedings can go on. 21. By referring to a decision in Union of India v. Dharmendra Textile Processors (2008) 174 Taxman 571 (SC) in the context of Section 11AC of Central Excise Act, wherein the Apex Court considered relevant provisions as to whether Section 11AC was inserted by the Finance Act 1996 with an intention of imposing of mandatory penalty on persons, who evade payment of tax can be read to contain mens rea as an essential ingredient and there is scope for levying penalty below prescribed minimum limit, and it was held by the Apex Court that penalty cannot be levied below prescribed minimum limit. 22. Lastly in the context of Section 56 of Foreign Exchange Regulation Act, 1973, it was held that there was no immunity to companies from prosecution merely because prosecution i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 99,900/- and refused undisclosed income so assessed to ₹ 2,33,100/- and no surcharge was to be levied at present and revised demand notice was to be issued. The assessee has also replied to notice dated 30.11.1998 issued by Deputy Director of Income Tax (Prosecution) Surat, by reply dated 7.1.1999, wherein it was contended that undisclosed income in Section 158 B (b) include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of accounts or other documents or transactions where such asset, entry or other document or transaction repaying wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act. Therefore, what the assessee had already disclosed or would have disclosed is not to be treated as undisclosed income. Besides, reference was made to Chapter XIV-B of the Act, whereby the undisclosed income incorporated into the scheme with effect from 1.7.1995 to 30.12.1996 was deleted and, accordingly, search was required to be assessed separately, for which budget note for the year 1995-96 were also relied on. The assessee tried to justify that the bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BC whereby what is assessed is the undisclosed income of the block period and not total income of any previous year and the determination of the undisclosed income is the income, which was not disclosed or determined in the regular assessments. Therefore, what was concealed for regular assessment is taxed as undisclosed income in the block assessment. Even it was pleaded that there was no willful attempt to evade any tax so as to bring provisions under Section 276 (c) (i) of the Act and immunity granted by Section 158 BF from levy of interest and penalty under Section 271 (1) (c), 271 (A), 271-B of the Act. That there is no mention of Section 276-C in Section 158BF of the Act and, as a matter of fact, a careful reading of Section 276-C transpires that if a person willfully admits to evade any tax, penalty or interest chargeable or imposable under the Act, 1961 then only prosecution can be launched. 26. None of the authorities gave clear finding about evading tax willfully and on the contrary deduction was given under Section 80IA by ITAT Bench to the extent of ₹ 99,900/-. Therefore, a company having past turn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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