Delhi High Court

Dapel Investment Ltd. & Ors. vs Assistant Commissioner Of Income ... on 7 January, 2000

Equivalent citations: (2000) 160 CTR Del 428

Author: J.B. Goel

ORDER

J.B. Goel, J

This criminal revision petition under sections 397/401 read with section 482 of the Code of Criminal Procedure (hereinafter referred to as "Code") is filed by the petitioners challenging the legality and validity of order dated 25-9-1998, passed by the Addl. Chief Metropolitan Magistrate (ACMM) dismissing their application under section 245(2) of the Code and declining to discharge them.

Petitioner No. 1, a company, and petitioners Nos. 2 to 4 its directors are respondents/accused No. 1 to 4 in the complaint filed by the Assistant Commissioner for proceeding against, them for offences punishable under sections 276C(I)/277 read with section 27813 of the Income Tax Act (hereinafter referred to as "the Act") in respect of return of the assessment year 1986-87.

2. Briefly the facts are that the petitioner had submitted its income-tax return to, the accounting year 1-7- 1984, to 30-6-1985, i.e. Assessment Year 1986-87 showing a loss of Rs. 2,167. The petitioner inter alia, had claimed expenses of Rs, 83,647 paid as hire charges in respect of a car (No. DIB-3538) alleged to have been purchased on hire-purchase basis. An income of Rs. 49,634 was shown as income from the said car. On being required to explain the expenses being more than the income, the petitioner stated that it had purchased the car from M/s B. Dharam Singh Babek Singh (Finance) (P) Ltd. by means of hire purchase agreement, dated 18-6-1984, when an initial payment of Rs. 27,201 was made and balance amount of Rs. 60,690 was paid in 12 monthly instalments during the same accounting year. It appears that the hire purchase agreement provided for exercise of option for purchase on payment of token purchase price of Re.l. The learned assessing officer held that this clause about exercise of option to become owner on payment of Re. 1 was colourable device to claim the amounts paid by it under hire-purchase agreement as revenue expenditure. He assessed the purchase price of the car at Rs. 72,000, treated it as capital expenditure, allowed an expenditure of Rs. 15,891 only (being the difference in Rs, 87,891 paid and Rs. 72,000 as cost price of Car) and thereby Rs. 72,000 was disallowed as expenses, added this amount as income and assessed the income accordingly. He also initiated penalty proceedings under section 271(1)(c) of the Act. The Commissioner (Appeals) in appeal vide his order, dated 29-5-1990, held that hire charges be calculated at the rate of 18 per cent on the price of the car and to that extent only the hire charges should be allowed as expenses. In pursuance of this order, the learned assessing officer assessed the cost of the car at Rs. 82,366 and Ps 5,525 as hire charges and thereby taxable income was increased by Rs. 10,366 In further appeal, the Income Tax Appellate Tribunal (hereinafter referred to as "The Tribunal") vide its judgment, dated 8-10-1991, however, set aside the appellate order 01 the Commissioner (Appeals) to the extent the income was so enhanced. The learned Tribunal further allowed deduction of Rs. 27,201 paid as initial payment and 40 per cent as depreciation on the capital cost of the car of Rs. 72,000. Thus, enhancement of the income only to the extent of Rs. 15,999 was upheld and allowed.

3. After the order of Commissioner (Appeals), the penalty proceedings were also initiated by the learned assessing officer and vide his order, dated 31-10-1989, held that income of Rs. 811,366 had been concealed and tax was avoided to the extent of Rs. 43,242 and imposed a penalty of Rs. 50,000 under section 271(1)(c) of the Act. This was confirmed by Commissioner (Appeals) in appeal. In further appeal, the Tribunal observed that in view of the deductions already allowed by the Tribunal, only Rs. 15,999 was the taxable income left unaccounted and in view of the deductions earlier allowed be the Tribunal and after taking into consideration other circumstances, he held that it was not a fit case to levy penalty, cancelled the penalty levied and set aside the order passed under section 271(1)(c) of the Act.

4. After the appellate order of the Commissioner (Appeals) was made in assessment proceedi?IU.,,, the assessing officer with the prior approval of the Commissioner under section 279(1A) of the Act filed a complaint, dated 30-3-1991, for proceeding against the petitioners for offences under sections 276C(I) and 277 read with section 278B of the Act. The learned ACMM took congnizance and summoned the petitioners. After the order was passed by the Tribunal quashing the penalty levied, the petitioners filed an application under section 245(2) of the Code for discharge in view of the order of the Tribunal. The learned ACMM vide impugned order, dated 25-9-1998, held that at this stage it could not be said that there was no wilful concealment or wilful attempt to conceal income or to evade tax, penalty or interest chargeable under the Act and dismissed the application. The petitioners have filed this revision against that order.

5. I have heard learned counsel for the parties. Learned counsel for the, petitioner has contended that the Tribunal had set aside the order imposing penalty not finding it a fit case for imposing penalty. That order has not been challenged and became final. Also that there is no mens rea to base conviction. As such, the prosecution on the same facts cannot be sustained and in the circumstances, the impugned order is not valid. He has relied on certain case law.

Whereas learned counsel for the revenue has contended that the Tribunal has also found concealment of income to the extent of Rs. 15,999 and in view of this concealment, the inference arises that the income has been wilfully concealed or attempted to be concealed to evade tax. The finding of Tribunal is not binding on the criminal court who has to come to an independent determination whether there is wilful concealment or attempt to conceal income giving rise to criminal liability. At this stage what is to be seen is whether there is prima facie material to proceed and not whether it would necessarily result in conviction. He has also relied on certain case law.

6. Learned counsel for the petitioner has relied on Uttam Chand v. Income Tax Officer (1982) 133 ITR 909 (SC) and other judgments of various High Courts taking similar view mostly following Uttam Chand case (supra).

7. In Uttam Chand case (supra) the assessee-firm had been granted registration as partnership firm by the Income Tax Officer. One of the partners of the firm (Smt. Janak Rani) asserted before the Income Tax Officer that the assessee-firm was not a genuine firm and she was not its partner. She also denied. her signatures on the partnership deed. The Income Tax Officer accepted this assertion, held that the petitioner was not a genuine firm and accordingly he cancelled the registration of the firm. That cancellation was affirmed in appeal by the Commissioner (Appeals) but on further appeal being taken, the Tribunal set aside the orders of the Income Tax Officer and of the Commissioner (Appeals) and held that the firm was a genuine one. Before this order of the Tribunal, the revenue had filed a complaint case against the partners of the assessee-firm for their prosecution under section 277 of the Act. After the order of the Tribunal, the accused persons moved the learned Magistrate for discharge from the criminal case which was rejected. The High Court of Punjab & Haryana also declined to quash prosecution in the exercise of its inherent powers on the ground that a criminal court is to independently go into the allegations made in the complaint on the basis of evidence to be adduced before it by the revenue and it is open to the accused persons to take any defense to prove their case. The matter was taken to the Supreme Court in SLP. The SLP was allowed and the prosecution of the accused persons was quashed. The Supreme Court held that on the appraisal of the entire material on the record, the said Smt. Janak Rani was found to be a partner of the assessee-firm and the firm was a genuine one and as such the assessee could not be prosecuted for filing false return. The principle thus laid down in that case is that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee on facts given by the highest fact finding authority constituted under the Act. This principle has been followed in S.P. Sales Corpn. & Ors. v. S.R. Sikdar (1993) 113 Taxation 203 (SC). In that case, the assessee had made purchases of Rs. 20,015 during the assessment year 198586 from two named firms. The assessing officer held that the purchases had not been accounted for by supporting relevant documents and were thus made outside the books of accounts and penalty was imposed. On consideration of the material, the Commissioner (Appeals) in appeal held that the purchases were duly accounted for and the penalty was set aside. This order was affirmed in appeal by the Tribunal. However, before these orders, a complaint was laid under section 276C', 277, 278 read with section 278B of the Act by the assessing authority. The Supreme Court, upheld the order quashing criminal proceedings and held that the foundation for prosecution had been knocked off its bottom and the complaint laid against the assessee no longer survived and accordingly quashed it.

8. In Parkash Chand v. ITO (1982) 134 ITR 8 (P&H) , prosecution proceedings were initiated against an assessee for filing false returns. Pending criminal proceedings, the Tribunal in penalty proceedings on the basis of material arrived at the finding in favour of the assessee that there was no proof that the assessee had concealed the income and furnished inaccurate particulars and cancelled the penalty. The Punjab & Haryana High Court following Uttam Chand case (supra) held that in view of the order of the Tribunal the criminal proceedings against the assessee could not continue and quashed the same. Again in Kanshi Ram Wadhwa v. Income Tax Officer (1983) 36 CTR (P&H) 134 (1984) 145 ITR 109 (P&H) ., it was held that when there was no case for sustenance of penalty, there would not be a case for criminal prosecution. The learned Judge repelled the contention that the criminal court has to arrive at an independent finding de hors the annulment of the penalty proceedings. Criminal Complaint was quashed with the observations that the Court's time is precious and is not meant to be employed for proceedings which are directionless.

9. Following Uttam Chand case (supra) and Punjab and Haryana High Court, the Patna High Court in Banwari Lal Satyanarain v. State of Bitiar (19B9) 80 CTR (Pat) 31 : (1989) 179 ITR 387 (Pat) . has held that where in penalty proceedings, final fact-finding authority under the Act who has expert knowledge of the subject has deleted penalty in its entirety after having been satisfied that the assessee has furnished good and sufficient reasons for failure to deduct and/or pay the tax within time, the prosecution thereafter of the assessee would not be justified.

Again these Uttam Chand (supra) and Punjab & Haryana High Court's judgments have been followed by Kerala High Court in Premier Breweries Ltd. v. Dy. CIT (1994) 117 (Ker) CIT 35 . and Madras High Court in Mohd. L Unjawala & Ors. v. CTR Asstt. (1995) 126 CTR (Mad) 371 :(1995) 213 ITR 190 (Mad) and the latter held that where the Tribunal has quashed and set aside the penalty proceedings, the finding of fact recorded by the Tribunal has to be accepted by the criminal court and on that basis prosecution was liable to be quashed and should not be allowed to be proceeded.

10. Bombay High Court in Shastri Sales Corpn. & Ors. v. Income Tax Officer 1996 Crl LJ 449 following these cases has taken the same view. In that case, it was held .

''It is true that the penalty proceedings under section 271(1)(c) and the prosecution under sections 276C, 277 read with section 278 of the Income Tax Act are distinct and separate and may co-exist. It is also true that there is no question of double jeopardy in such cases and the existence of one proceeding or the other proceeding is no bar to any of their inasmuch as an assessee can levy penalty as well as prosecute for noncealment of income and/or furnishing of inaccurate particulars. However, when the, final authority under the Income Tax Act, itself does not find any justification in the penalty order for the alleged concealment of income or furnishing of accurate particulars by the assessee or that the Tribunal holds that the department has failed to establish in the penalty proceedings that assessee concealed the income or furnished inaccurate particulars, prosecution of an assessee cannot be permitted on the self same facts."

It will also be relevant to refer to the following observations made by D.R. Khanna, J. (of this Court) in Sequoia Construction Co. (P) Ltd. v. Suri, Income Tax Officer (1985) 47 CTR (Del) 277: (1995) Tax LR 806 :

"Moreover, penalty proceedings under the income-tax law are primarily quasi criminal in nature. During their course, the rigour of the criminal law that a prosecution case must entirely stand on its own legs and not on the weakness of the defense version does not essentially operate with that infallibility. However, the onus on the prosecution in criminal matters is far rigorous and must be. proved beyond reasonable doubt. The defense version to be satisfactory and plausible in criminal trial is much lighter and is just weighed in the realm of preponderance of probability. In case, therefore, in any penalty proceedings under the income-tax law an assessee has been able to establish "good and sufficient reasons" before the Tribunal, can it not be said that qua the criminal trial at least on the same facts and circumstances, "reasonable cause" should be treated to exist ? I am making these observations in the context of those provisions, where the provisions of law both under the penalty provisions and prosecution are similar."

11. However, learned counsel for the revenue has relief on P. Jayappan v. S.K. Perumal, Income Tax Officer (1984) 42 CTR (SC) 180 : AIR 1984 SC 1693 and particularly para 5 thereof where it has been laid down as under :

"The criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case it may drop the proceedings in the light of an order passed Under the Act. It does not, however, mean that the result of a proceeding under the Act would be binding on the Criminal Court. The Criminal court has to judge the case independently on the evidence placed before it,"

In that case, the only point for consideration before the Supreme Court was whether prosecution for offences punishable under section 276C and section 227 of the Act and under sections 193 and 196 of IPC instituted by the department while the reassessment proceedings under the Act are pending are liable to be quashed err the ground that they were not maintainable. It was held that pendency of such proceedings cannot act as a bar. In that context, in para 6 it was further observed that

''It may be that in an appropriate case, the criminal court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under section 309 of the Code if the disposal of any proceedings under the Act which has a bearing on the proceedings before it is imminent so that it may take into consideration the order to be passed therein. Even here the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid view which makes it necessary for a criminal court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only because some proceedings which may have some bearing on it is pending else."

It is not an authority for the proposition whether a criminal proceeding should not be instituted when favourable finding of fact not justifying penalty being imposed is given by the final authority under the Act in favour of the assessee.

12. After considering Uttam Chand case (supra) and the aforesaid observation made in P. Jayappan, case (supra) the Supreme Court in K.T.M.S. Mohammed v. Union of India (1991) 98 CTR (SC) 84 : (1992) 197 ITR 196 (SC) held as under :

"The above principle of law laid down by this court gives an indication that the result of the proceedings under the Income Tax Act is one of the major factors to be considered and the resultant finding in the said proceeding will have some bearing in deciding the criminal prosecution in appropriate cases."

And it further held that :

"........ Though as held in Jayappan v. S.K. Perurnal Income Tax Officer (1984) 42 CTR (SC) 180: AIR 1984 SC 1693 that a criminal court has to judge the case before it independently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under the Income Tax Act." 13. In the present case, though the assessing officer had held that income to the extent Rs, 72,000 was liable to be added in the income of the assessee and this amount was further enhanced in appeal by the Commissioner (Appeals) but the Tribunal has found only Rs. 15,999 as the income which could be added. The Tribunal has also quashed the penalty imposed by the authorities below with the following observations : "After taking into consideration, these three deductions of Rs. 27,201, Rs. 15,891 and Rs. 28,800, the disallowance which has been finally sustained after the order passed by the Tribunal comes to only Rs. 15,999. The penalty proceedings were initiated by the assessing officer in respect of concealing the particulars of income amounting to Rs. 72,000 which has finally been reduced by the Tribunal to only Rs. 15,999. Apart from this, the assessee is also entitled to grant of .depreciation on the WDV of the car, which according to the assessee's counsel has been allowed to the extent of Rs. 17,280 in the immediately succeeding year, these facts clearly prove the absence of any guilty intention on the part of the assessee. The assessee made claim for deduction in respect of the instalment paid under the hire-purchase agreement by treating the same as hire charges to the extent of Rs. 60,690. Such a claim was based on the various clauses in the hire-purchase agreement. The assessee could entertain a bona fide belief that such a claim can be validly contested on the basis of the hire purchase agreement which clearly provides that the assessee will become the owner of the car only after all the instalments are paid and a further sum of Re. 1 is paid, thereafter. Such a belief, may be mistaken belief, would still be a bona fide belief which establishes the preponderance of probabilities in favour of the assessee. Moreover, there was no justification in levying the penalty on the entire amount of Rs. 72,000 which has been subjected to a substantial reduction as a result of decision by the Tribunal in the quantum appeal. On careful consideration of all the relevant facts and circumstances of the case, as discussed hereinbefore, I am of the view that it is not a fit case where any penalty can be levied under section 271(1)(c). I, therefore, direct the assessing officer to cancel the

In the result, assessee's appeal is allowed."

14. Obviously, the learned Tribunal has accepted the explanation of the assessee in making incorrect or wrong claim for deduction towards expenses on account of cost of the car in the income-tax return has not found it a fit case for levying penalty under section 271(1)(c) of the Act and has set aside the penalty imposed by the assessing officer and upheld by the Commissioner (Appeals).

15. Now, the question is whether on these facts, the prosecution should be allowed to proceed. The effect of the finding of the Tribunal would be that the assessee/accused were not guilty of concealment of income or furnishing of inaccurate particulars of income justifying imposition of penalty under section 271(1)(c) of the Act. On the same facts, it could not be said that the accused had wilfully attempted to evade any tax, penalty or interest under section 276C(I) of the Act. In any case the chances of conviction are too remote. In these circumstances and as is also the consensus amongst High Courts as noticed above., continuation of the criminal proceedings would serve no useful purpose. It will be. sheer waste of valuable court time and unnecessary harassment to the petitioners,

This petition is accordingly allowed. The impugned order, dated 25-9-1998, passed by learned ACMM is set aside, the application under section 245(2), Cr.PC of the petitioners is also allowed and the criminal complaint and the proceeding arising therefrom are quashed.