Basant Tubewell Store vs V.P. Garg, Income Tax Officer

V.S. Aggarwal, J.—By this common judgment both the abovesaid revision petitions can conveniently be disposed of together. The relevant facts are that Basant Tubewell Store, Sirsa, is a partnership concern. It had five partners, namely, Shanti Sarup Karopal, Krishan Kumar Sharma, Vinod Kumar Verma, Bal Kishan and Rajinder Kumar Karopal. The firm had the business in the sale and purchase of iron, hardware and tubewell parts. The partners had filed the income tax return, on 10-7-1981 action was taken u/s 133A of the income tax Act, 1961 (''the Act'') by the ITO on the business premises of the petitioners. During the course of action one Uchanti note-book was recovered and found in the control/possession of the petitioners. It was impounded by the ITO. On the verification of the books of account maintained by the petitioners with the Uchanti note-book, it was found that sales to the tune of Rs. 20,788 and purchases to a stock of Rs. 7,655 had been made by the petitioners from 1-5-1981 to 8-7-1981. The same were not entered in the books of account. At the time of the said action, the stocks of the petitioners were physically verified and checked. Their value was assessed at Rs. 1,29,558 while according to the account books, the value of the stock was only Rs. 1,13,250. In other words, it showed an excess stock of Rs. 16,308.

Later on, statement of Vinod Kumar partner of the firm was recorded on 14-7-1981 by the ITO, Sirsa. He admitted that pages 2 to 7 of the Uchanti note-book No. 4 were in his hand and recorded in English. It was also admitted that pages 37A, 38 and 39 had been written by their Accountant Durga Parshad. In this way the petitioners were stated to have admitted the ownership and maintenance of the Uchanti note-book. He was questioned about the sale of Rs. 20,788 mentioned in the Uchanti notebook. Vinod Kumar had replied that they would have prepared a consolidated bill after the goods had been sold, as goods worth Rs. 3,000 to 4,000 were of defective nature. With respect to the purchases recorded in the said note-book to a stock of Rs. 7,655, Vinod Kumar had admitted that they would have reflected these purchases at the time of closing of the account. In this process, it was asserted that the petitioners could not satisfactorily explain the under-statement of the valuation of stock in their regular books of account against the actual verification. The statement of Durga Parshad, Accountant, was also recorded by the ITO. He admitted that he had written pages 37A, 38 and 39 of the Uchanti note- book in his hand.

The case of the prosecution was that the accused were under an obligation not to omit or cause to be omitted any relevant entry or statement in the books of account. They had wilfully attempted to evade the tax, penalty or interest chargeable under the Act. By not making the entries of sale and purchase in their books of account, the accused were bound to be in possession and control of books of account containing false entries. It was contended that they had committed the offence punishable under sections 276C and 278 of the Act.

In support of their case, evidence had been produced. The learned Chief Judicial Magistrate, Sirsa, considered the pre-charge evidence and concluded that no case was made against the petitioners and that if un-rebutted, it would not warrant their conviction. The accused-petitioners were discharged. The ITO filed a revision petition in the Court of Sessions. On 28-9-1987 the learned Addl. Sessions Judge, Sirsa, allowed the revision petition holding that the Trial Court proceeded on a wrong premise. The evidence was appreciated on wrong hypothesis. Accordingly, the order of the Chief Judicial Magistrate was set aside. He was directed to make further enquiry into the matter in accordance with law.

Aggrieved by the said judgment of the learned Addl. Sessions Judge, Sirsa, the present revision petitions had been filed.

During the pendency of the revision petition, the petitioners preferred an application alleging that while the revision petition was pending, the Commissioner (Appeals), Rohtak, had set aside the amount of penalty of Rs. 19,040 levied by the ITO, Sirsa, u/s 271(1)(c) of the said Act. The said order of the Commissioner has become final and no further appeal has been filed. Similarly, the Commissioner (Appeals) had deleted the additions made by the ITO. Against the same, the Commissioner had preferred an appeal. The said order was confirmed by the Tribunal, Chandigarh, on 13-7-1993. On the strength of these orders, it was contended that the penalty imposed by the ITO had been deleted and set aside and, therefore, the present petitions deserved to be allowed because the very basis of the complaint was knocked out. The petitioners were permitted to place on the record the order of the Commissioner (Appeals) and the judgment of the Tribunal, Chandigarh.

During the course of arguments, the learned counsel for the petitioners raised a number of arguments but the respondent met its Waterloo because of the subsequent events. It becomes unnecessary, therefore, to consider the other contentions.

The subsequent events are clear that while the present revision petitions were pending, the Commissioner and the Tribunal had held that additions and penalty on basis of which the prosecution had started, be deleted. The short question that comes up for consideration is as to whether in these circumstances, the prosecution proceedings should be quashed or not. Reference to some of the precedents in this regard would be in the fitness of things. In the case of Uttam Chand and Others Vs. Income Tax Officer, Central Circle, Amritsar, he registration of the partnership firm under the Act had been granted for the year 1969-70. The ITO cancelled the registration on the ground that firm was not genuine. The basis for so holding was the statement made by one of the partners. The ITO had initiated prosecution of the partners. In the meantime, the Tribunal on appraisal of the material on record found that the firm was genuine. The question that came up for consideration was if after the findings of the Tribunal, it could be held that the prosecution could continue or not. The petition was dismissed by this Court. On appeal the Supreme Court had set aside the said findings and allowed the appeal. It was held:

Heard counsel, special leave granted. In view of the finding recorded by the income tax Appellate Tribunal that it was clear on the appraisal of the entire material on record that Shrimati Janak Rani was partner of the assessee-firm and that the firm was a genuine firm, we do not see how the assessee can be prosecuted for filing false returns. We, accordingly, allow this appeal and quash the prosecution." (p. 910)

Subsequently, in the case of Surinder and Company and Another Vs. A.K. Thatai, Income Tax Officer, a similar question had again cropped up. The prosecution had been launched for making false statement in verification. But the penalty proceedings with respect to concealment of income had been quashed by the Tribunal. The question was again considered as to if the prosecution proceedings should be quashed or not. A Single Judge of this Court relying upon the decision in the case of P. Jayappan Vs. S.K. Perumal, First Income Tax Officer, Tuticorin, held that it is unnecessary to continue with the criminal complaint and the proceedings. It would be an abuse of the process of the Court because the penalty proceedings had been set aside. Accordingly, the criminal proceedings were quashed.

A Division Bench of this Court in the case of Income Tax Officer Vs. B.B. Mittal and Others, Taxman 344 in a case where prosecution had been initiated u/s 276C and section 277 under the income tax Act read with section 193 of the Indian Penal Code, 1860, also found that once the Tribunal had recorded that there was no concealment of any income, the complaint should have been dismissed. It was held:

In view of the observations recorded by the Appellate Tribunal, under the Act, the Trial Court rightly placed reliance on Parkash Chand Vs. Income Tax Officer, A-Ward, ), wherein the facts involved were that prosecution was launched against the assessee for offences u/s 277 of the Act, along with sections 193 and 471 of the Indian Penal Code on the basis of filing false returns, false accounts and inflated items of purchases. During the pendency of the criminal proceedings, parallel penalty proceedings for concealment of income were also pending before the Tribunal. The Tribunal examined the whole incriminating material against the assessee and arrived at the conclusion that none of the income tax authorities has clearly established that particular items of purchases were inflated and as such there was no proof of the assessee having concealed his income or having furnished inaccurate and false particulars. Accepting the appeal of the assessee, the Tribunal recorded a finding that there was no concealment or submission of false accounts and as such cancelled the penalty. Under these circumstances a Division Bench of this Court opined that, in view of the finding of the Tribunal that there was no concealment and no inaccurate accounts were filed by the petitioners, the criminal proceedings against the petitioners could not continue and were to be quashed. In the present case also, the finding recorded by the Tribunal in its order dated April 29, 1986 is also to the same effect as recorded by the Tribunal in Parkash Chand Vs. Income Tax Officer, A-Ward,

Same was the view of the Kerala High Court in the case of V. Rajasekharan Nair Vs. Commissioner of Income Tax and Others,

The matter in this regard would be clinched further by the decision of the Supreme Court in the case of G.L. Didwania and Another Vs. Income Tax Officer and Another, In the cited case the assessing authority held that the assessee had intentionally concealed the income derived from the company which belonged to him. The appellate authority had set aside the said finding and held that there was no material that company belonged to the assessee. It was concluded that prosecution, therefore, could not continue. In paragraph 4 the Supreme Court held:

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.

Reverting back to the facts of the present case, one can easily refer to the order passed by the Commissioner, Rohtak. It was held that there was no concealment of income. Only higher G.P. rates were applied and additions were made. It will not attract penalty u/s 271(1)(c)-The Commissioner further found that the assessee was under a bona fide obligation that no penalty was leviable. The order of the assessing authority was set aside. Similarly, on 13-7-1993 the Tribunal, Chandigarh, had found that there was no defect in the sale, purchase and store of the hardware. That being the position and the penalty having been set aside, the very basis of the criminal prosecution would be lost. These findings knock the bottom of the prosecution case. In the circumstances, taking note of the subsequent evidence, it must follow that the basis of the criminal prosecution had been lost. The judgment of the learned Addl. Sessions Judge cannot be sustained. Accordingly, the revision petitions are allowed and the order of the learned Trial Court is restored.