Jay Frozen Foods and others vs Income Tax Officer

Padmini Jesudurai, J.—The petitioners who has been convicted by the Additional Chief Metropolitan Magistrate (Economic Offences I)

Egmore, Madras, in E. O. C. C. No. 629 of 1983 for offences u/s 120B, 193, 196, 420, 467 and 471 of the Indian Penal Code, 1860, and

section 277 of the Income Tax Act, 1961, and sentenced to various terms of imprisonment and fine, which conviction have been confirmed in C.

A. No. 328 of 1984 by the Principle Sessions Judge, Madras, with slight modification in the sentence relating to petitioners Nos. 2, 4 and 5, have

filed the present revision challenging the convictions and sentences.

The gravamen of the charge against the petitioners was that, though the third petitioner was not really a partner of the first petitioner-firm from

April 1, 1977, onwards, all the petitioners conspired together for the purposed of getting the Income Tax of the first petitioner assessed at a lower

rate and made it appear as if the their petitioner continued to be a partner even after April 1, 1977, fabricated the partnership deed dated April 1,

1977, fabricated the day-book by omitting to enter the real profits due to petitioners Nos. 2 and 4, fabricated the ledger by showing false capital

account and false current account, produced these false documents before the Income Tax officers and, on the basis of the misrepresentation

contained in those documents, made the Income Tax Officers pass assessment orders for the assessment years 1978-79 and 1979-80 at reduced

rate, delivered before the Income Tax Officers false returns and false statement, forged the signatures of the third petitioner in the registration deed

and in the partnership deed, used the above forged documents as genuine, falsely made verification in the returns for the above years for continuing

the registration that there was no change in the constitution of the firm, delivered these false verification before the Income Tax Officers and

committed the above offence in pursuance of the conspiracy and made themselves liable for punishment u/s 120B, 193, 196, 420, 467 and 471 of

the Indian Penal Code, 1860, and section 277 of the Income Tax Act, 1961.

The prosecution cases is briefly as follows;

The first petitioner is a registered firm carrying on export business in marine food like prawns and shrimps to foreign countries. Originally, the

firm when it was constituted in 1976, consisted of four partnership on per exhibit P-3(a). One of the partners, Joseph, retired from the partnership

on March 31, 1977. The firm was reconstituted with petitioners Nos. 2 to 4 as partners, with 25 per cent. share of profits for the second

petitioner, 25 per cent. for the third petitioner and 50 per cent. for the forth petitioner. The fifth petitioner who was the manager of the first

petitioners-firm was the brother-in-law of petitioners Nos. 2 and 3. Petitioners Nos. 2 and 3 are brothers . According to the prosecution, from

March 31, 1977, the third petitioners ceased to be a partner of the firm. However, in the application for registration of the firm and in returns filed

for assessment ,it was shown as if the third petitioner also continued to be a partner of the firm for the assessment years 1978-79 and 1979-80.

Declaration were filed on behalf of the firm, signed by the second petitioner that the firm had not undergone any change for the year 1979-80. The

assessment was completed on the basis that the third petitioner was also a partner of the firm. Later on, it came to light that the first petitioner firm

was making huge profits which were not disclosed. Hence, a search of the business premises of the first petitioner-firm as well as the residence of

petitioners Nos. 2 to 5 was conducted simultaneously by various Officers of the Department u/s 132 of the Income Tax Act, 1961, and, during the

search, several account books, documents and various slip of papers were seized. Petitioners Nos. 2 to 5 and original co-accused No. 6 who was

the maternal uncle of the fourth petitioner were all examined and their statement were recorded. In particulars, as far as this case is concerned, a

diary, exhibit P-24, was seized from the residence of the second petitioner and certain slips of paper, exhibit P-31 series, were seized from the

residence of the fifth petitioner. Exhibits P-24 and P-31 series showed that the profit from the first petitioner firm was shared equally between the

second and fourth petitioners and no profit was paid to the third petitioner. When the third petitioner was questioned by the officers, he stated that

he did not know anything about the day-to-day management and affairs of the firm, that his share in the business was 25 per cent. but beyond that

he did not know anything about the actual profit due to him. On the basis of this material, the prosecution case is that the third petitioner had

ceased to be a partner of the firm from April 1, 1977, and, consequently, the statements made to the department, the returns filed, the declarations

made and all connected records on the basis of which the assessment orders for the assessment years 1978-79 and 1979-80 had been passed

were also false. The admitted signatures of the third petitioner in the warrant of authorisation for the search, in the panchnama relating to the search

and in the sworn statement recorded after the search, were compared with the application for registration of the firm for the year 1978-79, with the

new partnership deed and it was found by the document expert that the signatures in the two latter documents were not those of third petitioner.

On the basis of this evidence, the prosecution sought to establish its case.

During trial, on behalf of the prosecution, PWs-1 to 10 were examined and exhibits P-1 to P-69 were marked. The petitioners, when

questioned, stated that the third petitioner had continued to be a partner of the firm and his share of profit was duly paid to him and the third

petitioner in particular stated that the signatures found in the new partnership deed, as well the application for re-registration of the first petitioner

firm, were his signatures and that they were not forged. Exhibits D-1 to D-33 were marked on their side.

The learned magistrate accepted the prosecution case and convicted the first petitioner of offences under sections 120B, 196 and 420 of the

Indian penal Code, 1860, and sentenced it to pay a fine of Rs. 1,000, Rs. 500 and Rs. 500 respectively. Petitioners Nos. 2, 4 and 5 were

convicted of an offence u/s 120B of the Indian penal Code, 1860, and sentenced to undergo imprisonment for a period of six months. They were

also convicted of offences under sections 196, 420 and 468 of the Indian Penal Code, 1860, and sentenced to undergo imprisonment for a period

of one year and to pay a fine of Rs. 500 for each of the offences. They were also convicted of an offence u/s 471 of the Indian Penal Code, 1860,

and sentenced to pay a fine of Rs. 500 and convicted of an offence u/s 193 of the Indian Penal Code, 1860, and sentenced to undergo

imprisonment for a period of six months and to pay a fine of Rs. 500. The second petitioner was convicted of an offence u/s 277 of the Income

Tax Act, 1961 under three counts and petitioners Nos. 4 and 5 under two counts and sentenced to undergo imprisonment for a period of six

months and to pay a fine of Rs. 250 for each count. The third petitioner was convicted of an offence u/s 193 of the Indian Penal Code, 1860 and

sentenced to undergo imprisonment for a period of six months and to pay a fine of Rs. 500. The sentences of imprisonment were ordered to run

concurrently.

In appeal, the learned sessions judge confirmed the conviction, but modified the sentence of one year imprisonment on petitioners Nos. 2, 4 and

5 wherever it occurs, to imprisonment for a period of six months. This revision challenges the above conviction and sentence.

Thiru N. C. Raghavachariar, learned senior counsel appearing on behalf of the petitioners, put forth several contentions, both on law as well as

on facts. Extensive submissions were made referring to the case law touching on the various aspects which the learned public prosecutor, by way

of lengthy submissions and by referring to case-law, sought to meet. However, in view of my finding on one question which is the crux of the

prosecution case, namely, whether the prosecution has proved that the third petitioner was not a partner even after March 31, 1977, it is needless

to refer to all the other submissions, both on facts, and on law, made by the respective learned counsel.

The entire prosecution case is built on the allegation that the third petitioner ceased to be a partner of the firm on March 31, 1977 and

thereafter, he was not a partner and the partnership consisted only of the second petitioner and the third petitioner and that, for the purpose of

getting a concession under the Income Tax Act, 1961, in the matter of assessment, all the petitioners conspired together and made it appear, as if

the third petitioner also continued to be a partner of the firm. It is, on this premise that the entire prosecution case is built up. We have, therefore, to

find out whether, as a fact, the prosecution has succeeded in establishing that the third petitioner was not a partner of the firm after March 31,

1977.

No doubt, both the courts have held that the third petitioner was not a partner subsequent to March 31, 1977, and consequently, all the other

offences have been committed by the petitioners. The trial court as well as the lower appellate court are courts of facts and it is for them to render

findings on facts. This is a revision and the powers of this court in a revision such as this, against concurrent findings of fact, are considerably

limited. It is not for this court, during such a revision, to reassess the facts, reappraise the evidence and disturb the findings of fact, if they are

arrived at properly. However, it would be the duty of the court, in exercise of its revisional jurisdiction, to set aside a finding of fact concurrently

arrived at, if this court is satisfied that a material piece of evidence has been overlooked or the evidence has been appreciated in a perverse

manner. As far as this case is concerned, though the finding on this issue is concurrent still we find that, before the learned sessions judge, during

the criminal appeal, on application by the petitioners, they had been permitted to adduce additional evidence. PW-1 had been recalled and exhibits

D-13 to D-17 had been marked. In addition, DWs-1 to 3 had been examined and through them exhibits D-4 to D-12 series had been marked. It

is only the appellate court that had the benefit of this additional evidence before it, while deciding the main issue as to whether the third petitioner

was not a partner after March 31, 1977. On a perusal of the additional evidence received in the appeal and the judgment of the appellate court, it

is seen that the learned session judge had not considered the additional evidence and certain clinching documents produced by the petitioners

which has been in existence long prior to the search and seizure and whose authenticity could never be doubted and which go a long way to shatter

the prosecution case on this vital issue. The learned sessions judge has not considered these documents, and as I shall show later, rejected them for

very flimsy and frivolous reasons It has, therefore, become necessary for this court, under its revisional jurisdiction, to scrutinise the additional

evidence let in by the petitioners in the appeal and test it against the prosecution evidence adduced during the trial. A scrutiny of the facts,

therefore, has been necessitated under the above circumstances.

It is the prosecution case that when Joseph retired from the firm and the firm was reconstituted, the third petitioner continued to be a partner of

the firm. This was on March 31, 1977. When that is the prosecution case, one fails to see at what stage the third petitioner had ceased to be a

partner. According to the prosecution, when the partnership was first formed in 1976, the third petitioner was a partner. According to the

prosecution, exhibit P-3(a) is a true document and it reflects the true facts. In the next year, according to the prosecution, Joseph alone had retired.

The third petitioner had not retired. If, in 1976, under exhibit P-3(a), the third petitioner was a partner of the firm, I am unable to find at what stage

the third petitioner ceased to be a partner. It is to be kept in mind that exhibit P-17 ledger as well as exhibit P-20 ledge for the expenditure and

export, etc., all show that their petitioners also was a partner of the firm. His share of the initial investment is shown. The related day-book contains

a ledger page for the third petitioner and their petitioner''s capital continues even after 1980. This would prima facie indicate that, when it is the

prosecution case that the third petitioner was a partner on 1976 and it is not put forward as to when and in what manner he had ceased to be a

partner in 1977, it has to be inferred that the third petitioner continued to be partner of the firm.

The prosecution seems to rest its case mainly on exhibits P-24 and P-31 series sized during the search of the premises. Learned counsel, Thiru

N. C. Raghavachariar, would contend that the entries in exhibits P-24 and P-31 series are vague and inconclusive and the prosecution cannot rest

its case on guess work. Learned counsel also contended that, if these document had been seized from the business premises of the first petitioner-

firm, than there would be something to connect the documents with the business of the first petitioner-firm, but since these documents have been

seized not from the business premises of the firm, if could not be presumed that these writings relate to the business of the firm. I am unable to

accept this contention. It is admitted by the second petitioner that the he wrote exhibit P-24, even though there are writing of other persons also. A

Comparison of the figures mentioned in exhibit P-31 slips would correlate with the entries in the ledgers and accounts of the first petitioners-firm,

though they are found in exhibit P-31 series in contraction. Both the courts below, therefore, have elaborately discussed these aspects and they are

found in exhibit P-24 and P-31 series relate to the first petitioner-firm. These conclusions have been properly arrived at and I find no illegality or

impropriety or error in these findings. It is, therefore, established that exhibits P-24 and P-31 series relate to the first petitioner-firm.

The initial question still remains, at to whether, merely from exhibit P-24 and P-31 series, the prosecution is justified in inferring that the third

petitioners had ceased to be a partner subsequent to March 31, 1977. In this prosecution, we are not concerned with the question whether true

returns have been filed showing true income of the first petitioner firm. These question are to be dealt with by the assessing forum. This court, at

this stage, is concerned with the limited question as to whether, from exhibit P-24 and P-31 series, it could be inferred that the third petitioner has

ceased to be a partner from March 31, 1977. This inference is sought to be drawn by the prosecution on the ground that the income from the first

petitioner-firm is shown as having been divided equally between the second petition and the fourth petitioner and has no separate share has been

shown as payable to the third petitioner. Even if such an inference could be made, it would not be decisive in establishing that the third petitioner

was not a partner. This would not be the only inference that could be drawn from exhibits P-24 and P-31 series. We cannot miss the fact that

petitioner Nos. 2 and 3 are brother and the fourth petitioners is the only stranger in the firm. It is the statement of the second petitioner that he is

managing the business of all his sister and his only brother, the third petitioner herein, and also the business of his late mother and the two trusts,

once created by his grandfather and the other created by his senior paternal uncle.

Even according to the prosecution, the third petitioner was not managing the affairs of the firm. In a partnership, it is not necessary that all the

partners should know everything about the partnership. It is not necessary that they should reside in the place where the office of the partnership is

situated. There could even be sleeping partners. The second petitioner has stated that he keeps a separate day-book and ledger for his brother,

namely, the third petitioner, and for the three trusts he manages. Though he managers the affairs of his five married sister, still he does not keep

separate accounts for them, since they are not assessees. The third petitioner is a resident of Cochin. While apportioning the profits among the

three partners, if the second petitioner who was admittedly managing the firm, totalled up his share with that of his only brother, the third petitioner,

as against the share of the fourth petitioner who was an outsider, it would not lead to the inference that this share was not paid to the third

petitioner and that the third petitioner was not a partner of the firm. The prosecution, when it relies upon a circumstances to prove a crime, has to

bear in mind that the circumstance must be such that it leads only to one inference, namely, that of the quilt of the accused. It the apportionment of

the income into two equal sums could be explained in other ways, the circumstance cannot be put forward by the prosecution as establishing the

guilt of the accused.

I am unable to drawn the inference from exhibit P-24 and P-31 series that, from the manner of apportionment of the profits, the third petitioner

could not have been a partner not only for the person stated above, but for a more important reason which the learned session judge has

unfortunately missed

DW-2 is the Income Tax officer, D-Ward, Circle-I, Ernakulam. The third petitioner was an assessee under him. Through DW-2, exhibit D-

6,the Income Tax return for the assessment year 1978-79 of the third petitioner has been marked, while exhibit D-8 is the assessment of accounts

accompanying exhibit D-6. Exhibit D-9 is the assessment order for the above year. Similarly, for the assessment year 1979-80, the statement of

above year. for the assessment year 1979-80, the statement of accounts of the third petitioner is exhibit D-10 and the assessment order is exhibit

D-11. Though the books of account of the first petitioner-firm continued to show that the third petitioner is a partner of the firm and continued to

have his assets in the firm, the prosecution case is that these documents are all untrue and false. A simple way to test the same to find out whether

the profit that is shown in the first petitioner''s ledger as having been credited to the third petitioner is a false document or is a mere paper entry

would be to find out whether the income from the first petitioner-firm is reflected in the returns and in the statement of accounts filed by the third

petitioner in his individual capacity. If they are not so reflected, the prosecution would be justified in concluding that the ledgers and account-book

of the first petitioner-firm contain false entries. On the contrary, we find that, in exhibit P-8, the statement if account of accounts for the assessment

year 1978-79, a sum of Rs. 22,027 has been shown as the share of the third petitioner in the profit of the first petitioner-firm. In no ambiguous

terms, it is mentioned in exhibit D-8 that the share of profit from Jay Frozen Foods, Madras, is Rs. 22,027. The evidence of DW-2 is that, on the

basis of these returns, exhibit D-9, assessment order, was passed in which the above profit has been accepted as the third petitioner''s asset.

Similarly, for the assessment year 1979-80, exhibit D-10, showed a loss of Rs. 17,746, as being his share of the loss in the first petitioner firm,

DW-2, the Assessing officer, in exhibit D-11 assessment order, has observed as follows :

Share of loss from Messrs. Jay Foods taken provisionally as nil subject to rectification on completion of firm''s assessment.

These orders are for the assessment years 1978-79 and 1979-80. These documents have come into existence long prior to the search and

seizure. The authenticity of these documents, therefore,cannot be questioned. Unfortunately, the learned sessions judge, in paragraph 19 of his

judgment, rejected this evidence merely of the ground that the address of the third petitioner as given in exhibit D-7 is Jew Town, Cochin-2,

without the name of the street or the door number and, in exhibit D-6, the address of the third petitioner has been shown as Cochin-2 and nothing

more. It is not the prosecution case that some other Ismail Hajee Jacob Sait is a partner in the first petitioner-firm. If only the learned sessions

judge had considered exhibits D-8 to D-11, it would have been impossible for him to hold that the prosecution had established the fact that the

third petitioner had not been a partner subsequent to March 31, 1977.

The additional documents marked before the appellate court, exhibits D-13 to D-17, are reflected in the returns filed by the third petitioner

referred to above. Both the courts below have been swayed by the statement given by the third petitioner that he does not know the details of his

share in the firm''s income. It is the consistent statement of all the partners that the third petitioner continues to be a partner. It is not necessary that

the share of profit credited should have been withdrawn by the partner. The third petitioner still contends that no document has been forged and

that the documents contain his signatures. He knows his share of investment in the business. The profit actually to be divided each year need not

necessarily by known to him, particularly when his own brother is managing the affairs.

Both the courts below have placed reliance on the evidence of PW-10, the handwriting expert, whose evidence is that the person who signed

as the third petitioner in exhibits P-44, P-45 and P-36 has not signed exhibits P-38 and P-40. No doubt, he had given reasons. But, it is settled

law that the evidence of a handwriting expert is a very weak piece of evidence. It is not evidence, but it is only an opinion. Unlike the opinion of

fingerprint expert, the opinion of a handwriting expert could not be taken with certainty, particularly in this case, when the third petitioner whose

signature is alleged to have been forged himself contends that it is his signature and that it is genuine. Further, it is also common knowledge that the

handwriting of a person as well as his signature would change and vary depending upon several factors. Hence, no undue importance should be

given to the evidence of PW-10.

As stated earlier, when the prosecution rests purely on circumstantial evidence to establish its case, that circumstance must be such as to lead

to the only inference that the facts put forward by the prosecution are proved. In the instant case, since exhibits D-13 to D-17 are reflected in

exhibits D-7 to D-11 which had come into existence long prior to the search and seizure, it is impossible to hold that the prosecution has

succeeded in establishing that the third petitioner had ceased to be a partner after March 31, 1977. Unless that basic fact is proved, none of the

offences can be said to have been committed. I, therefore, hold that the prosecution had failed to establish the basic fact that the third petitioner

was not a partner after March 31, 1977. The convictions and sentences have to be set aside.

Though elaborate submissions were made by both the parties, as to who is competent to file the complaint, whether there could be a

conviction of petitioners Nos. 2 to 5 for the offence u/s 277 of the Income Tax Act, 1961, without a charge for the above offence against the first

petitioner-firm, whether all the incriminating pieces of evidence has been put to the petitioners when questioned u/s 313 of the Criminal Procedure

Code, 1973, and if not, what would be the legal consequences of the failure to do so, it is needless for me to dwell upon them, since, factually, I

have found that the very basis of the prosecution case has not been established.

In the result, the convictions and sentences are set aside and the revision is allowed. The fine amounts, if paid, shall be refunded. The bail

bonds, if any, shall stand cancelled.