Court upholds company liability under Income-tax Act, allows prosecution during appeal, emphasizes lower court's authority.

Shankar And Company And Others Versus Third Income-Tax Officer

Shankar And Company And Others Versus Third Income-Tax Officer - [1992] 193 ITR 172, 97 CTR 92, 59 TAXMANN 354 Issues:
1. Quashing of proceedings in C. C. No. 365 of 1987 before the Special Court for Economic Offences, Bangalore.
2. Prosecution of a company under sections 276C, 277, and 278 of the Income-tax Act.
3. Power of the respondent to record statements of accused Nos. 2 and 3 under section 131 of the Income-tax Act.
4. Legality of launching prosecution during the pendency of an appeal.
5. Explanation of discrepancies and liability of an auditor in criminal charges.

Detailed Analysis:
1. The petitioners sought to quash the proceedings in C. C. No. 365 of 1987 before the Special Court for Economic Offences, Bangalore, under section 482 of the Criminal Procedure Code. The petitioners, accused in the case, challenged the order of issuing process by the Presiding Officer. The court heard arguments and examined records before dismissing the petitions.

2. The issue of prosecuting a company under sections 276C, 277, and 278 of the Income-tax Act was raised. The defense argued that a company cannot be prosecuted based on previous judgments. However, legal precedents and statutory provisions were cited to establish that while a company may not face imprisonment, it can be prosecuted to establish the liability of its officers and persons in charge.

3. The defense questioned the power of the respondent to record statements of accused Nos. 2 and 3 under section 131 of the Income-tax Act. The court clarified that the respondent, acting as an Assessing Officer, had the authority to examine individuals on oath as part of the inquiry process.

4. The legality of launching prosecution during the pendency of an appeal was contested. Citing a Supreme Court ruling, it was established that the pendency of reassessment proceedings does not bar the initiation of criminal prosecution for specified offenses. The court emphasized that criminal proceedings must independently establish the elements of the offense.

5. The defense sought to explain discrepancies and argued against the liability of an auditor in criminal charges against the company. The court highlighted that the powers under section 482 of the Criminal Procedure Code are to be sparingly used and not to assess the sufficiency of evidence for conviction. The defense was directed to present their arguments in the lower court for consideration.

In conclusion, the court dismissed the petitions, emphasizing that the lower court is competent to address the defense's arguments and make decisions in accordance with the law.