TMI Blog1990 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... Chief Judicial Magistrate (Economic Offences), Jaipur. The facts necessary to be noticed for the disposal of this writ petition briefly stated are : that petitioner No. 1, M/s. Shree Singhvi Bros. is registered partnership firm and petitioners Nos. 2 and 3, Shri Kushal Singh and Laxmansingh, are its partners. It is alleged that a search was conducted at the business premises as well as at the residential premises of the partners under the provisions of section 132(1) of the Act on May 6, 1981. During the course of the search, 65 kgs. of silver was found, out of which 16 kgs. of silver/silver ornaments were treated as unexplained by the Authorised Officers of the, Income-tax Department and, therefore, the Department included its value amounting to Rs. 32,000 in their income for the assessment year 1982-83 while making the regular assessment. The petitioners explained that this silver belonged to Shri Mohansingh, Shri Banshilal and Shri Abdul Razid. After an order under section 132 (5) of the Act was made on August 1, 1981, the petitioner firm filed its return on October 1, 1982. However, the learned Income-tax Officer was not satisfied with this explanation and he included the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the hearing of the petition under section 273A of the Act, the learned Commissioner of Income-tax asked the petitioners to deposit the tax found due for the assessment year 1982-83 including the tax on the alleged unexplained silver weighing 16 kgs, and then he would waive the penalty imposed against the petitioner-firm under section 271(1)(c) of the Act. Such an assurance was specifically given to the petitioners during the course of hearing of the petition under section 273A of the Act on March 29, 1988. It was submitted that, actually acting on the said promise/ assurance of the learned Commissioner of Income-tax, the petitioners agreed to pay the tax found due against the petitioner-firm as per the assessment order dated January 5, 1988, including tax on the alleged unexplained silver weighing 16 kgs. and, therefore, on March 30, 1988, itself, the petitioners managed the funds and deposited the tax, vide challans (annexure 10). It is alleged that this fact of specific assurance was duly put on record by a handwritten letter dated March 30, 1988 (annexure 11) by counsel for the petitioner-firm which was duly handed over to the learned Commissioner of Income-tax per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet dated March 29, 1988, which reads as under "Shri B. M. Kothari C. A. Promise has been made to pay all the taxes for this year after giving effect. The payment should be made by March 30, 1988 at Udaipur. Heard. Put up with Tribunal's order." Thereafter, it is said that prosecution has also been launched against the petitioners. Before the launching of the prosecution, notice was given to the petitioner-firm to show cause as to why prosecution should not be launched against them. It is alleged that a hearing on the waiver petition was fixed on March 21, 1988. The hearing on the prosecution notice was also fixed on March 21, 1988 and, on that day, an adjournment application was filed to defer the decision on prosecution notice until the waiver application/petition is decided. Although the case was adjourned on that day, thereafter, no further opportunity was given to the petitioners in pursuance of the said notice, annexure 16 dated February 15/24, 1988, and an order was given for launching prosecution against the petitioners. It was contended that, in pursuance of the notice (annexure 16) that was issued to petitioner No. 1, no opportunity of hearing was provided to pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for contravention of the provisions of the Act till the disposal of the waiver petition. However, in the present case, the waiver petition has also been dismissed before the launching of the prosecution. The addition of tax has been maintained up to the stage of the Tribunal. It was further submitted that if the petitioners have any grievance as regards the criminal proceedings, they can take action according to the provisions of criminal law applicable to the case concerned but, so far as this writ petition is concerned, it is not maintainable. It was further contended that the prosecution has been launched against the petitioners after affording an opportunity of hearing. The provisions of section 279(1)(a) of the Act are not applicable in the present case. It was admitted that the appeal against imposition of penalty is still pending and it will be decided as and when it comes up for hearing. The petitioners cannot be permitted to raise this point before this court as it is sub judice before the Competent Authority. According to the respondents, no question of promissory estoppel arises in the present case because no promise whatsoever was given by the Commissioner. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should be decided after careful consideration of the material on record and the decision on the waiver petition should not be based on any extraneous reasons. It was contended that the prosecution has to be sanctioned by the Income-tax Officer but in this case, no sanction has been accorded after due application of mind. It was further submitted that the partnership being a juristic person cannot be prosecuted. Mr. Kothari has further argued that in such quasi-judicial matters, the domestic tribunals should follow the principles of natural justice. Mr. Kothari has submitted that, if the waiver petition is disposed of or the prosecution is launched, an opportunity of hearing should be provided to the affected persons. The principle of audi alteram partem is the basic principle of natural justice. He has submitted that, in this case, before launching prosecution, the principle of audi alteram partem has not been followed. Mr. Kothari has submitted that, although petitioner No. 1 has been issued a notice and the case was fixed for hearing on March 21, 1988, it was adjourned on that day and thereafter no further hearing was provided to the petitioners. According to Mr. Kothari, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners are aggrieved by the prosecution, they should avail of the proper remedy under section 482, Criminal Procedure Code, as the writ jurisdiction is not the proper remedy which may be availed of in such matters. Mr. Arora has also taken me through the file in which proceedings as regards waiver petition and the petition filed under section 154 of the Act have been recorded and, on the basis of those proceedings, Mr. Arora has argued that no specific assurance was given to the petitioners. I have considered the rival submissions made at the Bar. Now, I proceed to decide this writ petition on merits. At the very outset, I make it clear that so far as the levy of penalty under section 271(1)(c) of the Act is concerned, an appeal against that order is still pending and, therefore, this court is not going to give any finding as regards that contention of the petitioners. In that view of the matter, now only two controversies remain to be decided and they are : (1) Whether the waiver petition filed under section 273A has been rightly rejected or that order deserves to be quashed along with the order passed on the application under section 154 of the Act ? and (2) Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that order have been filed and hence that order of the learned Tribunal has become final. Thereafter, it is alleged that proceedings under section 271(1)(c) of the Act were initiated by the learned Income-tax Officer, who imposed the maximum penalty amounting to Rs. 29,600 against the petitioners on the amount of tax evasion amounting to Rs. 14,800. It was against this imposition of penalty that an appeal was filed and a waiver petition was also preferred by the assessee before the learned Commissioner of Income-tax. That waiver petition came to be fixed for hearing on March 21, 1988. In the meanwhile, a show cause notice was also issued to the petitioner-firm calling upon them to show cause why prosecution for concealment of income should not be launched against them. It is the admitted case of the parties that no notice was issued to the partners of the petitioner-firm. Be that as it may, in the notice, it was recorded that the case will be heard on March 8, 1.988, as regards launching of the prosecution. On that day, an adjournment application was filed. The notice is annexure 16. The adjournment application is annexure 17 wherein it has been prayed on behalf of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n too, the same averments have been reiterated. However, no reference of these two applications has been made in the order sheet nor in the order of disposal of the waiver petition dated May 31, 1988. In spite of the fact that the application, annexure 11, was submitted personally as alleged by the petitioners and this fact has not been denied. When this waiver petition was dismissed, an application under section 154 of the Act for rectification of the order dated May 31, 1988, was filed and in that application it was contended that such an assurance was given by the learned Commissioner that if they deposit the amount of the tax their prayer for waiver or substantial reduction of penalty imposed under section 271(1)(c) would be considered favourably, if the entire tax demand was deposited on March 30, 1988. It is alleged that, on the aforesaid assurance given by the learned Commissioner of Income-tax, the partner of the petitioner-firm went to Udaipur and deposited the amount of tax, This application was dealt with on July 21, 1988, in which the fact of the assurance given by the learned Commissioner of Income-tax was mentioned and the learned Commissioner, on this note, has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was given and that the assessee had deposited the amount of tax on March 30, 1988, on the basis of that assurance and the learned Commissioner would have written on these applications that no such assurance was given by him. This shows that although he gave such an assurance, he did not like to refer to that assurance in the order sheets. If it was a case of grant of no assurance, he would have mentioned on these two applications that no such assurance was given by him. To this extent 1, therefore, entirely agree with Mr. Kothari that some sort of assurance was given to the petitioners to deposit the tax on March 30, 1988, so that their case may be considered favourably. It was contended by Mr. Kothari that if a party acts in pursuance of the promise then the party extending the promise is estopped by rule of promissory estoppel to act against such a promise, i.e., it cannot resile from it. In this respect, reliance has been placed on a decision of their Lordships of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. [1990] 1 SCC 176, wherein it has been held that if action is taken in pursuance of the Government assurance, the principle of promissory esto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the order rejecting his waiver petition is a non-speaking order. Thus, to this extent, the argument of Mr. Kothari cannot be sustained. It was contended by Mr. B. R. Arora, learned counsel appearing for the respondents, that it is wrong on the part of Mr. Kothari to suggest that this opportunity is available to an assessee only once in his lifetime. It is true that when an application made by the petitioner is rejected by the learned Commissioner, then a further opportunity is available under section 273A(3) of the Act. Section 273A(3) of the Act reads as under "273A(3). Where an order has been made under sub-section (1) in favour of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order. " Thus, it is clear that this particular opportunity cannot be granted to an assessee again when an order is made in his favour. When the application is rejected, the assessee can file a second or third or fourth application. Thus, to this extent, the argument of Mr. Arora is sustained. The next contention raised by Mr. B. R. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something in the discharge of his statutory obligation. The acts or omissions are integrally connected with what the assessee may do or may not do in the matter of his assessment under the Act. Whether he has evaded payment of tax, interest or penalty chargeable under the Act as provided under section 276C or made a false statement on verification, etc., as provided under section 277 of the Act are required to be first ascertained on an examination of all the facts and circumstances of the case by the concerned Income-tax Officer. The Commissioner can take steps to prosecute the person concerned only on being satisfied that he has done the acts complained of. If the appellate or revisional authority modifies the order of the subordinate authority holding that the acts or omissions complained of either had not taken place or were not wilful or intentional, etc., the complainant cannot pursue his complaint on the strength of the facts earlier placed, which, in the altered situation, do not at all exist. The order of the subordinate authority merges with that of the appellate or revisional authority. Hence, during the pendency of appellate or revisional proceedings, to continue the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and cancelled the penalty, the Tribunal's decision did not even mean that it had found that the accounts were correct and, therefore, the prosecution cannot be quashed. A learned single judge of the Punjab and Haryana High Court has held in Harbans Singh v. Union of India [1988] 171 ITR 23, that the mere filing of an application for settlement under section 245C will not have the effect of staying the operation of the other provisions of the Act, like those providing for the prosecution of the assessee for concealing and making incorrect and false statements in the return. It was further held that criminal proceedings under sections 277 and 279 can be sanctioned and initiated before the conclusion of penalty proceedings. Reliance was also placed on a decision of their Lordships of the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696, wherein it has been observed (headnote) : "There is no provision in law which provides that a prosecution for the offences under section 276C or section 277 of the Income-tax Act cannot be launched until reassessment proceedings initiated against the assessee are completed." It has been further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Incometax Act, 1922. A plain reading of section 26 of the General Clauses Act shows that there is no bar to the trial or prosecution of the offender under both the enactments but there is only a bar to the punishment of the offender twice for the same offence." Thus, from the aforesaid authorities, it is clear that under the Act, the pendency of appeal or revision is no bar to the launching of prosecution. In this view of the matter, the contention of Mr. Kothari that as an appeal is pending against the penalty proceedings, no prosecution can be launched against the petitioners cannot be sustained. It may be stated here that the decision in Balaji Oil Traders' case [1984] 150 ITR 128 (Kar) is based on the decision of their Lordships of the Supreme Court in Uttam Chand's case [1982] 133 ITR 909 (SC), but that was a case where the Tribunal has already set aside the order of the learned Income-tax Officer and, therefore, taking advantage of that appellate decision, their Lordships quashed the prosecution. Thus, that decision has no application to the facts of this case. Here, the appeal filed against the penalty proceedings has not been decided so far. It was argued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of this court in Gori Shanker v. State of Rajasthan [1975] PFA Cases 59 as also on the decisions in Chittranjan Das v. State of Orissa [1973] 2 Cr. L. J. 1835 and Dhiansingh v. M. B. Saharanpur [1973] PFA Cases 404. All these authorities have little application to the facts and circumstances of this case. In this case, according to section 279(1) as it existed before April 1, 1989, i.e., when this prosecution was launched, consent or sanction of the learned Commissioner of Income-tax was not at all necessary. According to section 279(1) (old), prosecution has to be launched at the instance of the Commissioner. As stated above, in this case, the prosecution has been launched at the instance of the Commissioner and, therefore, to this extent, the contention of the petitioners cannot be sustained. The next contention raised by Mr. Vineet Kothari, learned counsel appearing for the petitioners, is that the petitioner-firm being partnership-firm, i.e., being a juristic person, it cannot be prosecuted and, therefore, the prosecution launched against it deserves to be quashed. He has further submitted that so far as petitioner No. 3, Shri Laxmansingh, one of the partners of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorporated or not and the word "director" in relation to a firm has been defined to mean a partner in the firm. In this view of the matter, Shri Kushal Singh and Shri Laxmansingh, petitioners Nos. 2 and 3 who are the partners of the petitioner-firm and who are responsible for the conduct of the business of the partnership firm can be prosecuted along with the petitioner-firm. Mr. Kothari has drawn my attention to a decision of the Calcutta High Court in Kusum Products Ltd. v. S. K. Sinha, ITO [1980] 126 ITR 804. That was a case for prosecution of an offence of submitting a false statement and verification. It was held that mens rea is an essential ingredient for the offence. The word "person" used in section 277 cannot include a company or a juristic person. Imprisonment is compulsory for the offence under section 277. A company or a juristic person cannot be sent to prison and, therefore, the company cannot be prosecuted for false verification in return. My attention was also drawn to a decision of the Delhi High Court in General Sales P. Ltd. v. Gopal Mukherjee, ITO [1987] 166 ITR 77. It was a case of wilful attempt to evade tax. It was held that imprisonment is compulsory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst AP and RA were quashed. Thus, this authority shows that after the introduction of section 278B of the Act, a firm or its partners can be held guilty but while making a complaint, there must be specific allegations against the persons concerned and if they are not there, they cannot be prosecuted and the prosecution launched against them will be liable to be quashed. Mr. B. R. Arora, learned counsel appearing for the respondents, has further submitted that the provisions of section 278B of the Act are analogous to section 10 of the Essential Commodities Act. In the Explanation, added to section 10 of the Essential Commodities Act also, the company has been defined to mean any body corporate and includes a firm or other association of individuals and the director in relation to a firm has been defined to mean a partner in the firm. He has drawn my attention to decision, of their Lordships of the Supreme Court in Sheoratan Agarwal v. State of M. P., AIR 1984 SC 1824, wherein, while considering the provisions of section 10 of the Essential Commodities Act, it was held that the company as also the persons responsible for the business of the company can be prosecuted. It was furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for contravention of section 271(1)(c) of the Act. Section 277 of the Act provides that, if a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine and, in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine. Interpreting these provisions, it was held by the Calcutta High Court in Kusum Products Ltd.'s case [1980] 126 ITR 804 that, for a criminal offence, mens rea is an essential ingredient and the company being a juristic personality cannot have any mens rea to commit any offence. It is only the partners of the firm or the directors of the company, who can be held guilty of making the false statement. In this vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he offence punishable as regards the person who wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, and, in doing that, the prosecution can show prima facie that petitioners Nos. 2 and 3 (the alleged accused) were responsible for those lapses. Initially, the burden is on the prosecution and if that burden is not discharged then of course, the accused-petitioner can show that he is not responsible. In this case, at the time of the search, petitioner No. 2, Shri Laxmansingh, was present. It was alleged on behalf of the petitioners that Laxmansingh could not offer any explanation at the time of the search because he was not in the knowledge of the fact that the 16 kgs. of silver belonged to three silversmiths and that fact was known to the other partner, Shri Kushal Singh, who was busy in the search proceedings. It is, therefore, clear that Shri Laxmansingh is very much concerned with the business of the firm and was looking after the affairs of the firm and was not in possession of any explanation as regards the possession of 16 kgs. of silver found in their possession on the date of the search in his shop and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering and Mfg. Co. of India Ltd. v. Union of India, AIR 1976 SC 1785, wherein it has been held that it is now settled law that, where an authority makes an order in exercise of a quasi judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. It was further observed that the rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. It was in this context that Mr. Kothari has submitted that although notice was given to the petitioner-firm, on behalf of the firm, an adjournment was sought. The case was adjourned but thereafter, no notice was given, although in the notings meant for consideration of the learned Commissioner it has been noted that fresh notice should be given but still that noting was overruled by the learned Commissioner and the application for launching prosecution against the petitioners was decided without giving any opport ..... X X X X Extracts X X X X X X X X Extracts X X X X
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