Raghunath Prasad Mohanlal and Others vs Union of India (UOI) and Another

S.L. Kochar, J.

This revision petition has been filed by applicants against judgment dt. 6th April, 1994, passed in Criminal Appeal No. 63/94 by VII ASJ Indore, arising out of order dt. 19th Aug., 1994, passed in Criminal Case No. 22/86 by Addl. Chief Judicial Magistrate (Economic Offences) Indore, thereby convicting the applicants for the offence punishable under Sections 276C, 277/278B of the IT Act (for short, ''the Act'') and sentencing applicant No. 1 with fine of Rs. 200 and applicants No. 2 to 4 RI for 3 months each with fine of Rs. 200 on each count.

The case of the prosecution in nutshell before the Court below was that applicant No. 1, through applicant No. 2 , Mohanlal, had submitted a return of income for the asst. yr. 1982-83, on 20th Sept., 1983, showing taxable income of Rs. 51,000. During search by Sales-tax Department, in the premises of applicants, some loose papers, Udarat Bahi, etc. were found and the same were seized. The entries available in loose papers and Udarat Bahi were not mentioned in the accounts books.

As per account books, total sale was shown to be Rs. 2,95,295 and the tax was assessed on the sale amount of Rs. 3,14,500. The assessee had declared total income of Rs. 51,000 which includes Rs. 22,340 as income outside the books. He offered this income for tax. Whereas the Income Tax Officer (for short, ''the ITO'') assessed total sale of Rs. 3,80,000 and income of Rs. 1,00,082. The assessee went up in appeal. The CIT(A) reduced it upto Rs. 66,455. On the basis of these facts criminal complaint was filed under Sections 276C, 277/278B of the Act alleging that by filing false statements in the return, they have committed wilful concealment of income and evaded tax.

Separate penalty proceedings u/s 271(1)(c) were also launched against applicants.

Learned trial Court, after examining the ITO Mr. Bhalchandra Kulkarni (PW 1) and hearing both parties, convicted applicants. Applicants went up in appeal and the same has been dismissed. This is the impugned judgment under challenge before this Court.

Learned counsel for the applicants Mr. Satish Bagadia, senior advocate with Mr. Chhabada, pressed into service a solitary submission based on pure question of law that the IT Department has dropped penalty proceedings initiated u/s 271(1)(c) of the Act, by order dt. 30th March, 1987. Along with the petition, photostat copy of the same was filed and order dt. 7th Nov., 2002 duly sealed and signed by the ITO has also been filed. Therefore, the conviction of the applicants would not stand for wilful concealment of income in order to evade tax. The counsel bolstered his submission by placing reliance on the judgments passed by this Court in Badri Prasad and Another Vs. Union of India (UOI), based on the case of Uttam Chand and Others Vs. Income Tax Officer, Central Circle, Amritsar, rendered by the Supreme Court; and judgment rendered by Delhi High Court in case of SEQUOIA CONSTRUCTION CO. P. LTD. AND OTHERS Vs. P. P. SURI, ITO, CENTRAL CIRCLE XX, NEW DELHI., .

In oppugnation learned counsel for the non-applicant supported the judgment passed by the Courts below.

Having heard learned counsel and after perusing the entire record, this Court is of the opinion that it would be just and proper to countenance the submission advanced by the counsel for the applicants that in view of dropping of penalty proceedings started by the Department u/s 271(1)(c) of the Act, the conviction of the applicants is not sustainable for wilful concealment of income in order to evade tax punishable under Sections 276C, 277/278B of the Act.

To elevate the submission of the counsel for the applicants it would be apt to reproduce the order of dropping the proceedings of penalty u/s 271(1)(c) of the Act.

"Asst. yr. 1982-93 : 271(1)(c) 30th March, 1987

Return was filed declaring total income at Rs. 51,000. As against this, income as determined after appeal stands at Rs. 66,450. The addition as sustained by the CIT(A) are Rs. 11,100 on account of difference in gross profit and in sales and Rs. 3,987 retained out of unexplained investment in the excess stock found. Since the additions made by the ITO on assessment on the basis of which proceedings u/s 271(1)(c) have been started, have been deleted in appeal by the CIT(A) and the relief has not been questioned by way of second appeal, the penalty proceedings u/s 271(1)(c) are dropped.

Sd/- ITO"

The aforesaid order is inevitably disclosing the fact that additions made by the ITO on assessment on the basis of which penalty proceedings were commenced had been deleted in appeal by the CIT(A). This order was not questioned by the Department in appropriate forum. Therefore, on this count, penalty proceedings were ordered to be dropped.

The Supreme Court in Uttam Chand''s case (supra) ruled out that "if there was no case far sustenance of penalty, it equally would not be a case for criminal prosecution. Therefore, the criminal complaint filed against the assessee was liable to be quashed."

The Patna and Bombay High Courts have also taken similar view in Banwarilal Satyanarain and Others Vs. State of Bihar and Another, and Shashichand Jain and others Vs. Union of India and others, . The Delhi High Court in case of Sequoia Construction (P) Ltd. (supra) has quashed the proceedings against the assessee because penalty imposed was set aside in appeal.

Learned counsel for the non-applicant placed reliance on the judgment of the Kerala High Courts in the case of P. Zubaire Vs. Asst. Commissioner of Income Tax and Another, . In this judgment against the order of penalty, the assessee went up in appeal and the Asstt. CIT remanded the case back to ITO for its disposal afresh. On this basis, the assessee prayed for acquittal. The same was not accepted because the proceedings were pending, The point involved in this judgment is altogether on different footing than the case on hand. Therefore, the same has no application in favour of the non-applicant.

In the wake of the aforesaid discussions, this Court is unable to concur with the judgment and findings of conviction passed by the learned Courts below. Therefore, the same are set aside.

Consequently, this criminal revision is allowed in the terms indicated above.