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Petitioner: MUHAMMAD I. UNJAWALA and others VS Respondent: ASSISTANT COMMISSIONER OF JUDGMENT
Court Name: Madras High Court Judge(s): Rangasamy Title:MUHAMMAD I. UNJAWALA and others vs ASSISTANT COMMISSIONER OF
JUDGMENT
Reported As: 1997 PTD 1002 Result: Order accordingly Judgment JUDGMENT ' All these petitions have been filed under section 482, Code of Criminal Procedure, to quash the criminal proceedings in C. C. Nos. 143 to 145 of 1991 on the file of the Additional Chief Metropolitan Magistrate (Economic Offences II), Madras. The first accused in these cases is a partnership firm dealing in cutting tools, hand tools and general hardware items. The other accused are partners. The respondent Income Tax Officer has filed complaints in the above said cases for offences under sections 276-C(1), 277 and 278-B of the Income Tax Act, 1961, and also under sections 120-B, 193, 196 and 420 read with section 511 of the Indian Penal Code for concealment of income. In C.C. No, 143 of 1991, it is alleged that the accused persons for the assessment year 1986-87 filed the return of income declaring a total income of Rs,2,21,575. The Income Tax Officer assessed the income on the basis of 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 & 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 totaling the amount of Messrs Addison & 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 above- mentioned 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 & Co. Ltd., the accused persons filed revised returns admitting an additional income of Rs,4,18,220. Therefore, for this concealment
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also, C. C. No, 144 of 1991 was filed in the same Court for prosecution under the abovementioned offences apart from initiating the penalty proceedings. The accused filed the return for 1988-89 declaring a total income of Rs,3,09,940. In the course of the assessment, the account books were perused and it was found out that the closing stock came to Rs, 18,84,585 showing a difference of Rs, 9,24,449 from the closing stock mentioned in the return. The accused filed a revised statement admitting the closing stock to the value of Rs, 18,84,585. For this discrepancy also, the complaint in C. C. No, 145 of 1991 was filed in the Court of the Additional Chief Metropolitan Magistrate and penalty proceedings were also initiated under the Act. It is to quash these three cases against the accused persons that these petitions have been filed invoking the inherent powers of the High Court. ' The six partners in the partnership firm, have filed Petitions Nos.4165, 4162, 4168, 4171, 4174, 4177 and 4180 of 1991 to quash the proceedings in C. C. No, 143 of 1991 Petitions Nos. 4166, 4163, 4169, 4172, 4175, 4178 and 4181 of 1991 have been filed to quash the proceedings in C. C. No, 144 of 1991 and Petitions Nos. 4167, 4164, 4170, 4173, 4176, 4177 and 4182 of 1991 are to quash the proceedings in C. C. No, 145 of 1991. In all these petitions, the grounds urged for quashing the proceedings are common. In the petitions, they have stated that their accountant by name Jeevaraj D. Vohra was maintaining the accounts of the firm but suddenly he expired on February 17, 1986, that, therefore, they found it difficult to finalise their accounts and the son of the previous accountant had taken over the post of accountant, that with little experience, he prepared the accounts for the submission of the returns, that, therefore, mistakes had occurred in the totalling of the purchases from Messrs Addison & Co. Ltd. And on account of this mistake the discrepancy had occurred. They have further stated when this mistake was found out later in 1989, they filed the revised returns for 1986-87, 1987-88 and 1988-89 voluntarily disclosing the correct income and, therefore, there was no intention to cheat the exchequer by concealing their income, that as they revealed the income voluntarily by filing the revised returns, they filed the writ petition (Writ Petition No,3952 of 1991) in this Court for forbearing the respondent Income-tax Officer from filing a complaint and also sought for an interim injunction restraining him from filing a complaint, that the discrepancy in the account was 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 have quashed the penalty proceedings accepting the contention of the petitioners that the discrepancy in the income is a bona fide mistake in totaling 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: (i) 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 Tribunal setting aside the penalty proceedings will exonerate the accused persons from the criminal proceedings initiated against them before the Additional Chief Metropolitan Magistrate, Madras. ' Learned counsel for the petitioners, Mr. Mani, contended that it is not specifically alleged in the complaint that the accused persons 2 to 7 are in actual administration of the first accused firm and, therefore, all of them cannot be prosecuted and the prosecutions against the partners of the first accused have to be quashed. He draws support from the decisions in Puran Devi v. Z. S. Klar, ITO (1988) 169 ITR 608 (P & H) and K. Subramanyam v. ITO (1993) 199 ITR 723 (Mad.) for his argument. In the first decision, it is held that only the person or the partner, who was in charge of
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and was responsible to the firm for the conduct of its business at the time of the alleged offence, is liable for the commission of the offence. In the latter decision, this Court has held that nothing was alleged against the petitioner who was the third accused in that case that he was responsible for the conduct of the business of the firm and, therefore, the criminal proceedings against him were liable to be quashed. But learned counsel for the respondent, Mr. Ramaswamy, contended that in these three complaints against the petitioners, a specific allegation has been made against all the accused, that in paragraph 6 of the complaint it is mentioned that the second accused had signed the balance-sheet and other statements that in paragraph 4, it is specifically mentioned that accused Nos.2 to 7, who are the partners of the first accused firm, were in charge of and were responsible for the conduct of the business of the first accused firm during the relevant period and in the paragraph 7, it is mentioned that the fourth accused filed the revised return and in paragraphs 8 and 9 also it is specifically mentioned that all the accused conspired to prepare false statements by inserting the credit in the name of Messrs Addison & Co. Ltd., and they all delivered the false return to the Income Tax Officer and, therefore, all the partners are liable to be punished and when there are such specific allegations against all accused partners abovementioned paragraphs, the complaints are maintainable against these accused persons. In the abovementioned paragraphs, specific allegations have been made against all the accused partners. When it is alleged that all of them had conspired together to inflate the credit bills of Messrs Addison & 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 most vital and important argument of this case. The Income-tax Officer imposed penalty for concealment of appeal before 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 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 known to the partners of the firm, the criminal Court going against this finding of the Tribunal cannot attribute mens rea alleging fabrication of the accounts and, therefore, the criminal proceedings against the petitioners have to be quashed. ' Before I refer to the case-law relied upon by both sides, I would mention the argument of Mr. Ramaswa my, learned counsel for the respondent, that the criminal proceedings under the Income-tax Act are kept outside the purview of the penalty proceedings as they are dealt with in different chapters indicating their independent operation and sections 276-C and 277 of the Income-tax Act, which are the prosecuting provisions before the competent Court, have nothing to do with section 271(1)(c) of the same Act which is for imposing penalty by the authority under the Act and section 271 of the Act has no overriding effect on the penal sections dit the Act as they are operating independently and when the ingredients of the offence are alleged in the complaint for the violation of the provisions of the Income-tax Act, it is for the Court to enquire and examine the witnesses to find out whether the offence alleged in the complaint was made out or not and, therefore, the enquiry under section 271-C by the authority under the Act for imposing the penalty cannot come in the way of the proceedings before the Court and the findings of the Income-tax Appellate Tribunal will not have any bearing on the prosecution of these petitioners. Mr. Ramaswa my, learned counsel for the respondent, further contended that in the proceedings before the authorities under the Act under section 271, they simply consider the question whether
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penalty is livable or not taking into consideration the representations placed in papers without any evidence for the allegations made against the assessee, but in the case of criminal prosecution, the Court thoroughly considers the charges levelled against the accused person by examining witnesses and the elaborate evidence before the Court is analysed by the Court to find out whether the offence was made out by prosecution and, therefore without submitting to the test to be done by the Court with regard to the charges against the assessees, they cannot escape the criminal prosecution by the order of the Tribunal, which is confining itself only to the penalty and, therefore, two independent functions one by the authorities under the Act and the other by the Court functioning outside the preview 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 276-C and 277 of the Income- tax Act. The learned Judge has taken the same view in another casein 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 alongwith the other accused to willfully evade tax. Defraud the exchequer of its legitimate revenue and deceive the concerned Income-tax Officer by fabricating false evidence in the form of books of account with false entries. Those allegations were sufficient prima facie to proceed with the enquiry against the accused persons and the complaint cannot be quashed under section 482, Code of Criminal Procedure. In Madura Chit and Investments P. v. ITO (1994) 208 ITR 228 (Mad.), Pratap Singh, J., has held that the criminal Court has to judge the case independently on the evidence placed before it and when the allegations in the complaint contain ingredients of the offence alleged against the accused person for which the complaint was launched, the prosecution cannot be quashed. In Chand Dhawan v. Jawahar Lal, AIR 1992 SC 1379, the apex Court has observed that when the allegations in the complaint prima facie constitute the offence alleged and the Magistrate being satisfied on the statement and the evidence of the witnesses examined and materials on record that cognizance should be taken, the accused cannot invoke section 482, Code of Criminal Procedure, to quash the proceedings. Therefore, from the view of these decisions, the criminal Court has to find out whether the allegations in the complaint are adequate to disclose the commission of the offence for the enquiry of the offence. But the peculiar circumstance in this case is the authority under the Income-tax Act viz., the Income-Tax Appellate Tribunal, has found that there was no concealment of income by these petitioners as they were not aware of the mistake in the return and the discrepancy in the return of assessm ent was bona fide mistake. Therefore, the question is whether this finding of the Income- tax Appellate Tribunal will have a bearing on the criminal proceedings pending before the Additional Chief Metropolitan Magistrate (E. 0. II), Madras. Learned counsel for the petitioners argued that even though the criminal Court has its independence in the enquiry regarding the offences alleged in the complaint, the finding of the Tribunal cannot be completely ignored by the criminal Court, as the Tribunals are fact-finding authorities and a question of fact that was answered by the Tribunal has to be respected by the criminal Court and, therefore, the criminal Court cannot take a different view on the same question of fact even though the enquiry may be independent. Learned counsel relies upon the observation of the Supreme Court in Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365, wherein the Supreme Court has held that the Income Tax Appellate Tribunal is 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
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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 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 is no evidence to support them or the Appellate Tribunal has misdirected itself in law in arriving at the findings of fact. But even there, the Court cannot disturb the findings of fact given by the Appellate Tribunal unless a challenge is directed specifically by question framed in a reference against the validity of impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law." ' From the above expression of the Supreme Court it has to be accepted that a finding of fact given by the Tribunal has to be respected by Court unless the Court takes the view that the Tribunal had erred in law in arriving at the finding of fact. Otherwise, the conclusion of the question of fact cannot be disturbed by the Court. Bearing this principle posited by the Supreme Court, the question involved in this case can be carefully approached. ' There is no argument before me that the Tribunal had erred in arriving at a conclusion that the mistake in the assessm ent was not known to the partners of the firm. The Punjab and Haryana High Courts has taken a consistent view that when the authority under the Act has set aside the penalty proceedings, the complaint against the assessee before the criminal Court for the same allegation is not sustainable. In Parkash Chand v. ITO (1982) 134 ITR 8, the Punjab and Haryana High Courts has held that when the income-tax authorities have held that there was no proof for the concealment of income or that the assessee had furnished inaccurate particulars and thereby cancelled the penalty, the criminal proceedings against the assessee for the offence of concealment of income cannot be allowed to continue. The same High Court in Basal Tool Co. v. ITO (1987) 167 ITR 24 (P & H) has repeated that when the Commissioner (Appeals) had found that there was no concealment of income and has set aside the order of the Income Tax Officer imposing the penalty there was no willful attempt to evade tax by the assessee and, therefore, the prosecution of the assessee was not justified. In yet another case in D. N. Bhasin v. Union of India (1988) 171 ITR 7, the Punjab and Haryana High Court has again repeated the same finding of the income-tax authorities in the assessm ent proceedings are relevant and the criminal Court is required to act upon them and, therefore, when 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 addition 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 assessm ent itself was not in existence, the question of maintaining the prosecution did not arise and, therefore the proceedings were liable to be quashed. In addition to these views of the two High Courts, which are direct on the point, the Supreme Court also has taken
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the same view in Uttam Chand v. ITO (1982) 133 ITR 909. Even though the facts were not discussed, the Supreme Court in its cryptic order has observed that in view of the findings recorded by the Income-tax Appellate Tribunal was clear on an appraisal of the entire material on record that Smt. Janak Rani was a partner of the assessee-firm and that the firm was a genuine firm, the assessee cannot be prosecuted for filing false returns, and accordingly, allowed the appeal and quashed the prosecution. It appears from the headnotes of that case that a partnership-firm was registered under the Income-tax Act and assessment was made on the partnership-firm. In 1969-70, one of the alleged partners by name Smt. Janak Rani sent a statement to the Income Tax Officer stating that she was not a partner of the firm and she did not sign the partnership agreement. Therefore, on the basis of the statement of the said Smt. Janak Rani, the Income-tax Officer cancelled the assessm ent as the particulars furnished for the registration of the firm were incorrect and criminal proceedings also were initiated against the other partners for having filed false returns as though Jank Rani also was a partner of the firm. But in the appeal before the Tribunal, it was held that the partner who gave the statement to the effect that she had not signed the agreement, was really a partner: lid, therefore, the firm was genuine. The criminal proceedings against the partners went up to the Supreme Court and the Supreme Court has made the above observation holding that in view of the Tribunal's findings that Janak Rani also was a partner, the criminal proceedings against the other partners was not sustainable. ' One more decision relied upon by learned counsel for the petitioner is Vaidyanathan, ITO v. Dr. B. Mathuram and Sons (1989) 179 ITR 463, which is a decision of this Court. In that case, as the assessm ent order was set aside by the Commissioner of Income-tax (Appeals), while the complaint was pending before the Magistrate, the learned Judge has observed that the complaint had become objectless and without any basis and, therefore, the Income-tax Officer might withdraw the complaint with permission to file it again if the circumstances warranted it. 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 detected by the Income-tax Officer and then proceedings were initiated against him and before the criminal Court, he contended that he revised return filed by him disclosing the entire income should be accepted and it would wipe out the criminal proceedings against him. In that connection, S. A. Kader J., has observed that the filing of the revised return will not exonerate the contumacious conduct on the part of the assessee and criminal proceedings and penalty proceedings can be initiated against him. This decision does not touch upon the point in controversy with regard to the weight to be given to the findings of the tribunal. The next decision R. N. Bajaj v. K. Govindan, ITO (1992) 198 ITR 447 (Mad.) also is not on the point as it deals with the proposal of the assessee for settlement with regard to the quantum of concealment and on that basis, the assessee questioned the prosecution, which was rejected. Therefore, that decision has no bearing on the point in controversy. The third decision cited by learned counsel, Mr. Ramaswa my is Prakash Roadlines (Pvt.) Ltd. v. Union of…
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