TaxTMI 
TaxTMI 
1984 (8) TMI 366
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.... criminal proceedings wherein the highest authority in the hierarchy of the structure of income tax Department construed the same entry in favour of the party under which not only the penalty was quashed but the said party has been completely exonerated .These are some of the landmarks in these proceedings carrying with them such peculiar features. The first petitioner herein is the Firm in question while petitioners Nos. 2 and 3 are the parties who are landed in these difficulties on account of having filed the Returns before the Income Tax Department signing the verification. The criminal complaint lodged by the Income Tax Officer A-11 Ward, Bombay against the three petitioners is the subject matter of Case No. 42-S of 1983 under sections 277, 278 and 276-C of the Income Tax Act, 1961 ("the Act") in the Court of the learned Metropolitan Magistrate, 28th Court, Esplanade, Bombay, where the learned Magistrate was pleased to issue process on all the counts which Order is being placed under challenge in this petition invoking the inherent powers of this Court under section 482 of the Code of Criminal Procedure, 1973. 2. The first petitioner is the Partnership Firm dealing in Impor....
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....1,43,895/- as the total cash incentive received by the Firm were indicated in the profit and Loss Account and Balance Sheet that was produced along with the Return. In the same documents and the Returns, the cash incentive received by the Firm were shown to the tune of Rs. 99,151/-. 3. After undergoing this exercise of scrutiny of the relevant documents, the Income Tax Officer opined that the receipt of total cash incentive of Rs. 1,43,895/- was dishonestly and intentionally split up by the Firm and by that process, there has been a concealment of the income in that category to the tune of Rs. 44,743/-. Which obviously was flowing out of the construction of the situation as per the officer that this could not be credited in favour of the retired partner as this was deemed to be the income of the Firm. Armed with this material and the formulation of the opinion, the Assessment was complete under which the total income of the Firm was held at Rs. 74,563/- parallel to that the officer also initiated penalty proceeding under section 271(1)(c) of the Act. 4. In the second phase of the litigation, the Firm filed appeal before the Appellate Assistant Commissioner of Income Tax, who ....
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....unt in the category of receipts of cash incentive and a transfer entry in the name of the retired partner Shri Shah though under the head as Capita income cannot be said to be a deliberate or wilfully misleading statement made by the Firm and the tenor of the order indicates in unmistakable terms that the mode of making the break up of amount of Rs. 1,43,895/- in the two amounts of Rs. 99,151/- credited in the Trading Account of the firm as Cash incentive and Rs. 44,743/- transferred in the Capital account of the retired partner and thereby showing only Rs. 99,151/- in the Firm's Account under the Head of Cash incentive cannot be said to be an incorrect mode of Account. On that basis, the Tribunal wholly exonerated the petitioners and the penalty sought to be levied by the authorities below was completely wiped out as being not sustainable. Significantly, the Department did not pursue the matter any further inspite of this decision and thereby at least ex facie impliedly accepted the same. 8. Thus armed with this Order of the highest Tribunal in this structure of the Income Tax Department as also on the basis of the plain reading of the complaint which essentially contains a....
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....en the Firm and the ex-partner. The learned Counsel even for the purpose of this proposition endeavoured to rely on certain observations of the Order of the Tribunal which also endorsed the view that the question about the mode of accounting may not be free from doubt and which could generate an honest difference of opinion between the Assessee and the Department, which however, is far away from the conclusion that the Assessee by such process wilfully concealed the income. In the final analysis the learned Counsel submits that continuing the criminal proceedings under these circumstances would be waste of time and energy and also would be and also to serve the ends of justice. Alternatively it was submitted that on the facts and circumstances of this case, there are obviously no sufficient grounds to proceed against any of the petitioners. 10. Shri A.R. Gupte, learned Counsel appearing on behalf of the complainant-Income Tax Officer, the Fourth Respondent herein, while countering these contentions submitted that for certain reasons no reference was filed in this Court against the Order of the Tribunal, may be because it was time barred, but that, according to the learned Counse....
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....n well be avoided. The question is posed at the threshold by Shri A.K. Desai that in view of the order of the Tribunal, the criminal case is not maintainable and it ipso facto gets exhausted would require scrutiny at this juncture. If this proposition spacious as it is formulated is accepted then the further probe in the merits of the matter may become unnecessary. If otherwise then the next question that logically would emerge would be whether on the facts and circumstances of the case can it be said that even ex facie any offence has been spelt out against the petitioners on any of the three counts and whether there are sufficient grounds to proceed against the petitioners in the criminal proceedings and if not, whether this would be a fit case to quash the proceedings or discharge the accused. Addressing the first question posed would be therefore, appropriate at this point of time. Reliance was placed by both the sides on certain ratios in that category. 12. In Uttam Chand and others v. Income-Tax Officer, (Central Circle, Amritsar) [1982] 133 ITR 909 (SC) a short judgment was delivered as: "In view of the finding recorded by the Income Tax Appellate Tribunal tha....
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....ontext, relying on Uttam Chand's case, the High Court held that there is no bar as such and penalty proceedings can be launched as also prosecution. However, it was further clarified as settled principle that whatever findings that are recorded in the orders in assessment or penalty proceedings, those may not be binding on the Criminal Court while determining the guilt of the assessee. But a principle of good sense seems to have been granted in the aforesaid principal by settling that, in case the Tribunal comes to a finding in penalty proceedings that the assessee has not furnished inaccurate particulars or had not concealed his income then that finding has, in a way, been made to influence the mind of the Criminal Court in requiring it to drop proceedings. Uttam Chand's case was analysed on that scrutiny. 14. Shri Desai, the learned Counsel also relied on the decision of the learned Single Judge of this Court in Criminal Application No. 773 of 1982 decided on November 20, 1982 in support of the proposition. More or less the similar situation arose and the Income Tax Tribunal recorded almost a similar order inter alia observing that there was no concealment of income th....
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....prosecution nor the Collector of Customs a 'Court'. Therefore, the rule of autrefois acquit cannot be invoked. Neither the issue estopped rule is attracted. The issue estoppel rule is but a facet of the doctrine of autrefois acquit .Even though the accused was given benefit of doubt in earlier proceedings the decision of Collector of Customs does not amount to a verdict of a acquittal in favour of accused so as to attract the rule of issue estoppels " The Supreme Court in that context analysed the concept of "prosecution" and " punishment" indicating that the proceedings before the Sea Customs authorities was not prosecution and the order of confiscation was not a punishment, inflicted by the Court within the meaning of Article 20(2) of the Constitution and, therefore, the subsequent prosecution was not barred. As regards the second aspect, it was observed that the proceeding before the Collector of Customs was not a criminal trial and, therefore, the decision of the Collector of Customs does not amount to a verdict of acquittal. It was also observed that adjudication before a Collector of Customs is not a prosecution not the Collector of Customs a Court. Referring to Ma....
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....ch unless overruled either expressly or impliedly would prevail. It is then significant to note that the decisions wherein the criminal prosecution has been quashed in view of the order of the authority of the Department essentially and in majority relate to proceedings initiated under the Income Tax Act where in the penalty proceedings, the Tribunal or any other authority of the Department has recorded a finding accepting the plea of the assessee either about transaction or the entry in the accounts or existence of a firm and it is in that context that the various decisions ruled that the criminal prosecution may not survive. The orders of the department which are reproduced in some of the cases fully demolish any prospective offence under the Income Tax Act especially about the concealment of income or making false entry in the accounts. Significantly, even in Telu Ram's case (cited supra), the Punjab and Haryana High Court which had relied on Uttam Chand's case indicated that such a finding by the Department would be required to be given due regard by the Criminal Court. Therefore, the process while accepting the ratio in Uttam Chand's case in favour of quashing of t....
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....at there is no scope even for the Department to adduce additional evidence or to construe the evidence adduced before the Department in any other manner in the criminal proceedings which case may justify taking a serious note which may entail into recording order of acquittal. None the less in such a case also the acceptance of the said prospective evidence by the Criminal Court may merge in the process adopted by the Department in the proceedings on the parallel channel. In a fit case out-right non-maintainability of the prosecution can be conceived whereas in another case acquittal even on the same set of allegations may not be conceivable. None the less the undercurrent would be that it would not be proper to divest a Criminal Court of its jurisdiction and all this will embrace the further principle that such a finding on identical set of allegations and evidence should be given due weight and regard by the learned Magistrate while dealing with criminal case being alive to the reality that the department which has initiated the prosecution has exonerated the accused and have assigned reasons for the same which may appear unassailable under the situation in which case the further....
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....the entire amount in that behalf, the petitioners are alleged to have shown an amount of Rs. 99,151/- under that head. Along with Return the accounts were not filed. The complainant Income Tax Officer would have it that he called upon the assessee to produce the account and he claims that it was his industry which revealed that this was incorrectly shown. Even giving credit to his so called industry, still complexion of the situation is not charged. According to the complainant, an amount of Rs. 44,743/- was shown as having been transferred in the name of the ex-partner Shri R.D. Shah and that too under the head of capital account to which the individual partner was not entitled. It is this mode of making entries coupled with non-production of the accounts at the initial stage which according to the complainant amounts to concealment of the said among of income of Rs. 44,743/- which if added to the Firm's income would entail into enhancing the assessment of the Firm. The Appellant Authority also endorsed this mode of reasoning of the Income Tax Officer. 20. In that context it must be noted that after the Return was filed, the hearing was posted on 20-11-1976 before the Incom....
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....s was a specific agreement between the two and the date mentioned therein as 30th June, 1972 tallies with the date in question and the amount in question and the amount in question placed in the account of the retiring partner as being exactly 50% of the cash incentives received upto that date and this ratio of 50% is prescribed under the agreement itself. That is how, the circuit is complete. It is very significant to note that it is not even faintly suggested on behalf of the Department that an amount of Rs. 44,743/- was due and payable to the Retiring Partner Shri R.D. Shah or any other account not is it suggested that this amount was placed in his account in addition to the 50% of the cash incentives. Even on this forum, the learned Counsel for the Department, Shri Gupte had to concede this position, though his objection is entirely different viz., that the amount received by the Firm as Cash Incentives is the exclusive income of the firm and no individual partner is entitled to it and the second objection is that it has been wrongly put in the name of the ex-partner under the head as Capital Account and not on account of his share in cash incentive as per the agreement and thi....
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.... "Secondly under the dissolution deed an enforceable right was created in favour of the outgoing partners and therefore, the said right clearly supervened the accrual of income in the hands of the assessee. The amount therefore, was diverted before it reached the assessee's till." It is on that count that the said amount was of the firm's income. Shri Desai, the learned Counsel submits with full justification that the petitioners were aware of such situation that could legitimately exist in law, though that petition merely high lighted that situation. If that be so, then the petitioners cannot be saddled with the condemnation that this was deliberately so done by them in order to reduce the income of the firm and by which there was a wilful concealment. The petitioners were propagating one school of thought in that behalf so that if the entries are made in consonance thereof which could be acceptable, then there is no question of any concealment much of wilful concealment. Support was also sought to be derived from the ratio in Devanrajulu Chetty & Co. v. Commissioner of Income Tax, Madras, reported in [1950] 18 ITR 357(Mad), while computing and appropriating the prof....
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....ely emphasising that it was the so called industry of the Income Tax Office that the correct state of affairs was disclosed, it cannot mean that even by such an industry any fraud or concealment was disclosed. What was disclosed was very much in existence in the shape of the two entries and what was concluded was on the basis of those entries with certain interpretation was made by the Income Tax Officer. There is no substance in that contention either. 24. In the face of these features practically steering in the face, it is impossible to accept that any offence has been made out even in the ex facie field against any of the petitioners. The Scheme of the relevant provisions of the Act would be relevant at this juncture. Under section 271(1)(c), penalty can be levied if the Officer is satisfied that the assessee has concealed the particulars of his income. Section 276-C relates to wilful attempt to evade the tax and which describes punishment. However, the overriding principle is expressed in the qualification that even assuming that there is an attempt of evading the tax, still to make it punishable it must be wilful attempt. "Wilful" has a peculiar characteristic indicating t....
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....come. The facts of the case clearly established that the assessee has credited the cash incentives received by it during the year under appeal in its cash incentives account. The total of cash incentives received by it during the year amounted to Rs. 1,43,894,50 out of which Rs. 89,487,74 related to the period ending on 30-6-1972. A copy of account relating to cash incentives in the books of the appellant-firm shows that the debit of Rs. 44,743,87 to Shri R.D. Shah Capital A/c." on 30-6-73, and that the balance of Rs. 99,151/- in this account is transferred to profit and loss account. A copy of the partners' capital account filed along with the return clearly specifies this amount of Rs. 44,743/- as other credits in the account of Ratilal Shah. The Department does not dispute this factual position, not the position that Shri Ratilal Shah is entitled to received 50% of the cash incentives amounting to Rs. 89,487,74/- for the period ending 30-6-1972." After considering Clause 7 of the Agreement, the Tribunal observed as: "As per the above clause of Agreement, the appellant firm had credited 50% of the cash incentives received on behalf of the earlier firm, to the acco....
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....he three provisions which are sought to be attracted and not restricted to section 271(1)(c) of the Act and therefore, on these facts and material none of those three provisions are attracted at all. As rightly observed by the Tribunal, the question whether there could be such a break up is a debatable one and there can be honest difference of opinion between the authorities and the assessee. That however, does not bring them under the clutches of the provisions of the Act much less visiting with penal consequences. As stated, such an interpretation which is canvassed by the petitioners could be available to them on the basis of various ratios of decided cases and canvassing as a question of law in good faith it could not be visited with any penalty under the Act much less any punishment under the criminal jurisprudence. 26. I am tempted to observe that the facts in the instant case are typical making it clear that the observations of the Tribunal would have direct impact on the issue involved in the criminal prosecution, more so when the maximum evidence that could be relied upon by the prosecution was placed before the Income Tax Officer by the petitioners and it was examined ....
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.... be waste of time, energy as also abuse of process of law. Such a course would also be essential in the interest of justice. 27. Shri Gupte, the learned Counsel for the Department and Shri Phanse, the learned Public Prosecutor for the State submitted that this is not a fit case of exercise inherent jurisdiction to quash the proceeding as the complaint is not of such type which deserves to be quashed on its plain reading and secondly this is not a fit case of discharge. In support of this proposition, reliance was placed on some of the decisions. However, the facts are obviously distinguishable and would not be applicable to the instant case. Thus, for instance, reliance was placed in the case of Nagawwa v. Veeranna 1976 CriLJ 1533 wherein certain principles are laid down when the proceedings can be quashed. Similarly, it has been observed in Hareram v. Tikaram 1978 CriLJ 1687 that the High Court cannot launch on a detailed and meticulous examination of the case on merits and set aside the order of Magistrate directing issue of process against certain persons. Shri Gupte, the learned Counsel also placed reliance on the division of this Court in Jacob Harold v. Vera Aranha wherein....