False income-tax return prosecution survives later assessment recomputation and vicarious liability extends to firm partners

Criminal proceedings under the Income-tax Act were not liable to be quashed under inherent jurisdiction merely because the assessment was later recomputed. The alleged falsity in the return, non-production of books, improper clubbing of income, failure to audit accounts, and submission of false particulars remained the basis of prosecution, and later relief in assessment did not erase that foundation. The Court also noted that the plea based on non-initiation of penalty proceedings had no merit, and that vicarious liability under the statute could extend to partners of a firm unless they showed they were not responsible for the offence.

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Issues: Whether the criminal proceedings for offences under the Income-tax Act, 1961 were liable to be quashed in exercise of inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 on the ground that the assessment had been later recomputed, no separate penalty proceeding was effectively initiated, and the partners could not be prosecuted for the alleged acts of the firm.

Analysis: The proceedings were founded on allegations of filing a false and evasive return, non-production of books of account, improper clubbing of income, failure to get accounts audited, and submission of a return alleged to contain false particulars. The later recomputation of income did not wipe out the alleged falsity at the time of filing the return, and the subsequent relief obtained in assessment proceedings did not negate the basis of the prosecution. The Court also held that Section 278B of the Income-tax Act, 1961 fastens responsibility on persons in charge of the firm and places on them the burden of showing that they were not responsible for the offence. The absence of merit in the plea based on non-initiation of penalty proceedings and the inapplicability of the relied upon precedents were also noted.

Conclusion: The prayer for quashing was rejected and the criminal proceedings were held to be maintainable against the petitioners.

Ratio Decidendi: Subsequent modification of assessment does not, by itself, erase the criminal liability arising from the filing of a false or evasive return, and partners of a firm may be proceeded against where the statute creates vicarious liability under Section 278B of the Income-tax Act, 1961.

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