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2001 DIGILAW 302 (KER)

K. v. Produce VS CIT

2001-06-15

G.SIVARAJAN, S.MARIMUTHU

body2001
JUDGMENT Sivarajan 1. The petitioners in O. P. 6942/1987 are the appellants. The first appellant is a partnership firm. The second appellant is one of the partners of the first appellant firm. Third appellant is the Manager and Power of Attorney Holder of the first appellant firm. 2. The matter arises under the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The 1st appellant. firm was mainly engaged in the business of purchase and sale of copra inside and outside the State. For the assessment year 1983-84, the relevant accounting period ended 31st March 1983, the firm filed a return declaring an income of Rs. 1,04,951. The Income Tax Officer completed the assessment on a total income of Rs. 2,64,090 by making an addition of Rs. 1,47,888 to the returned income. Aggrieved by the said assessment order, the firm filed appeal before the Commissioner of Income Tax (Appeals), Calicut. The appeal was dismissed and the assessment was confirmed. The firm filed a second appeal before the Income Tax Appellate Tribunal, Cochin Bench, Ernakulam. During the pendency of the said appeal the firm filed a revised return for the year 1983-84 declaring the assessed income of Rs. 2,64,090 as the total income. This revised return was filed along with a covering letter, dated 21st March 1987 (Ext. P-2) addressed to the Income Tax Officer, A Ward, Circle I, Calicut. It is specifically stated in the said covering letter that this revised return is filed under the Amnesty Scheme and that the appeal filed before the Income Tax Appellate Tribunal, Cochin Bench, Ernakulam has been withdrawn and a letter to that effect is enclosed. The firm had also requested that the tax of Rs. 13428 payable as per the revised return may be adjusted from the refund that is due for the assessment year 1981-82. The firm sought for grant of immunity from penal proceedings under the provisions of the Income Tax Act, 1961 in terms of the Amnesty Circulars issued by the Central Board of Direct Taxes. The Department, however, initiated prosecution proceedings by filing C. C. No. 62/1987 before the Additional Chief Judicial Magistrate's Court (Economic Offences), Ernakulam against the firm. The firm then filed a petition (Ext. P-3) before the Commissioner of Income Tax, Ernakulam seeking to withdraw the prosecution proceedings pending before the Additional Chief Judicial Magistrate's Court, Ernakulam as C. C. No. 62/1987. The Department, however, initiated prosecution proceedings by filing C. C. No. 62/1987 before the Additional Chief Judicial Magistrate's Court (Economic Offences), Ernakulam against the firm. The firm then filed a petition (Ext. P-3) before the Commissioner of Income Tax, Ernakulam seeking to withdraw the prosecution proceedings pending before the Additional Chief Judicial Magistrate's Court, Ernakulam as C. C. No. 62/1987. The Commissioner of Income Tax issued a communication, dated 20th May 1987 (Ext. P-4) to the firm stating that this is a case in which the Income Tax Officer has established concealment of income and completed the assessment accordingly, that the C. I. T. (A), Calicut in appeal confirmed the same and that in the circumstances there is no question of any disclosure under the Amnesty Scheme for the same amount now. The request made by the firm was accordingly rejected. The firm challenged the Ext. P-4 Order passed by the Commissioner in the O. P. They sought for direction to the respondents to accept revised return filed along with the covering letter Ext. P-2 as one filed under the Amnesty Scheme and to dispose of the return applying Circular No. 450(Ext. P-l) issued under the Amnesty Scheme. They also sought for direction to the respondents to withdraw the criminal case as C. C. No. 62/1.987 filed before the Additional Chief Judicial Magistrate's Court. 3. Respondents filed a counter affidavit in the O. P. The averment.; in the said counter affidavit are summarized as follows: As per the Assessment Order, dated 7th January 1,986 for the assessment year 1983-84, the Income Tax Officer established on the basis of evidence gathered by him that the assessee had excess stock of copra to the extent of 140.989 quintals as on 28th February 1983 and therefore, the Income Tax Officer added Rs. 1,47,888 being the sale value of the excess unaccounted stock to the income returned by the assesee for the assessment year 1983-84. The assessee went in appeal before the commissioner of Income Tax (Appeals) which was dismissed by Order, dated 5th September 1986. It is not correct to say that the Amnesty Scheme was declared during the pendency of the appeal before the Tribunal. The relevant circulars were issued by the Central Board of Direct Taxes from 1985 onwards. The offer was in force even before the assessment was completed by the Income Tax Officer. It is not correct to say that the Amnesty Scheme was declared during the pendency of the appeal before the Tribunal. The relevant circulars were issued by the Central Board of Direct Taxes from 1985 onwards. The offer was in force even before the assessment was completed by the Income Tax Officer. The assessee did not care to avail of the benefits of the circulars till it became certain to the assessee that the second appeal filed by the assessee also will meet with the same result as the appeal before the Commissioner of Income Tax (Appeals). Ext. P-1 circular issued by the Central Board of Direct Taxes was not applicable to the assessee's case. The assessee has not filed any return suo motu disclosing the additional income before the detect ion of concealment by the Department. The criminal complaint (C.C. 62/87) was filed after due and proper consideration of all the material facts at all levels of the Department and only after the satisfaction, the prosecution of the petitioner was warranted in this case. In those circumstances, the Commissioner of Income Tax (Cochin) rejected the request of the petitioners made in Ext. P-3, by Ext. P-4 letter. By filing a revised return by the petitioners after the final assessment has been made, admitting the very same amount as assessed by the Income Tax Officer, there is no suo motu filing of the return within the Amnesty Circulars. The disclosure made by the assessee cannot be treated as a voluntary one. The assessee did not make any declaration before the Administrative Commissioner as contemplated in the circulars. The declaration by way of filing the revised return was made by the assessee long after the detection of the concealment and after it was contested by the assessee at various levels and that only when the assessee realised that the second appeal pending before the Tribunal also will be dismissed on merits, the assessee deemed it fit to file a revised return. By that time, steps for launching prosecution have already been initiated and the assessee might have got scent of it and then quickly decided to withdraw the second appeal and file the revised return. The conduct of the assessee reveals that there was no bona fide decision to turn honest even at this stage. By that time, steps for launching prosecution have already been initiated and the assessee might have got scent of it and then quickly decided to withdraw the second appeal and file the revised return. The conduct of the assessee reveals that there was no bona fide decision to turn honest even at this stage. The petitioners have filed a petition before the Central Board of Direct Taxes, New Delhi on8th October 1987[Ext. R-2(d)] for obtaining the very same relief now claimed by the petitioners in the O.P. The petitioners have approached this Court without waiting for the result of the petition filed before the Central Board of Direct Taxes. 4. The learned Single Judge, who heard the writ petition, held that the prayer for directing withdrawal of C.C. 62/1987 cannot be granted, for, there is no provision in the Code of Criminal Procedure or in any other law, for withdrawing a private complaint and that an accused person has no right in him to seek withdrawal of a criminal complaint. It was further observed that the criminal court is in seisin of the case, and it is upto it to deal with the case in accordance with law. Regarding the applicability of the circular (Ext. P-1), the learned Judge took the view that the said circular was not in force at the time when the petitioners submitted the revised return and further, there is no disclosure involved. 5. Sri C. M. Devan, Senior Counsel appealing for the appellants submitted that the addition of Rs. 1,47,888 to the returned income made by the assessing authority represents the difference in the value of stock as per the books of the firm and as per the statement furnished by the appellants to the Union Bank of India, Calicut from whom the first appellant firm has availed of loan facility on the hypothecation of goods and that the appellants have subsequently filed the revised return availing the benefit of the Amnesty Scheme then in force. The Senior Counsel further submitted that Circular No. 451, dated 17th February 1986 issued by way of clarification regarding the press note and circulars issued by the Ministry of Finance regarding declaration of higher income or wealth clearly provided for filing of revised return even in cases where assessments are made and appeals pending and that the appellants honestly believing the said circulars made a true disclosure of their income by filing a revised return claiming benefits and advantages declared under the above circulars and also withdraw the appeal that was pending before the Income Tax Appellate Tribunal. Counsel also submitted that the appellants have filed revised returns for the years 1980-81 to 1986-87 to avail of the benefits under the Amnesty Scheme and thereby settling all disputes and outstanding matters, that for the assessment year 1980-81 appeal was pending before the Commissioner of Income Tax (Appeals) and for the assessment years 1983-84 and 1984-85 appeals were pending before the Income Tax Appellate Tribunal, Cochin Bench, that all the three appeals were withdrawn in the light of the Amnesty Circulars and that the Department had accepted all the returns filed under the Amnesty Scheme except for the year 1983-84, for which no reasons are given. The Counsel also submitted that the penalty proceedings under S.271. (1) (c) of the Act initiated by the Department for concealment of income was dropped after the filing of the revised return. Counsel further submitted that Circular No. 451, Question No. 28 and its answer clearly provides that in a case where addition is contested in appeal the asses see can claim the benefit of the circular provided the asses see should withdraw the appeal and make a declaration before the Administrative Commissioner and in such a case a lenient view will be taken, though such a declaration cannot be taken as entirely voluntary. The counsel submits that the learned Single Judge grossly erred in holding that the scheme was not in force at the time of submission of the revised return and that the scheme was not applicable to the appellants. The counsel further submitted that the learned Judge also erred in holding that there is no provision in the Code of Criminal Procedure enabling the withdrawal of a private complaint. 6. The counsel further submitted that the learned Judge also erred in holding that there is no provision in the Code of Criminal Procedure enabling the withdrawal of a private complaint. 6. Learned Central Government Standing Counsel (Taxes) appearing for the respondents submits that the assessee had concealed income in the return filed for the assessment year 1983-84 and that the same was detected by the assessing authority and the assessment was completed by adding the same to the returned iv.come. It Is stated that the Central Board of Direct Taxes had issued circulars granting benefit of Voluntary Disclosure of Income or Wealth from 1985 onwards and that the same was available even before the assessment was completed by the Income Tax Officer. It is also pointed out that the assessee did not make use of the benefit available under the said circulars until it is made sure that the appeal pending before the Tribunal will also meet the same fate as before the first appellate authority. The Standing Counsel further points out that Answer to Question No. 1.9 in the Circular No. 451, dated 1/th February 1986 clearly states that if the Income Tax Officer has already found material to show that there has been concealment that would mean the Department had detected the concealment. He submitted that the appellants are not entitled to the benefit of the Amnesty Circular relied on by them. The Standing Counsel pointed out that the appellants have filed petition before the Central Board of Direct Taxes, New Delhi on 8th October 1987 and that they have approached this Court without waiting for the result of the same. 7. The assessment of the appellants for the year 1983-84 was completed on 7th January 1986. A sum of Rs. 1,47,888 was added to the returned income under unaccounted sales and the total income was fixed at Rs. 2,64,090. The stand taken by the assessee before the assessing authority was that for obtaining a loan from the Union Bank of India, Calicut the assessee in the statement furnished before the Bank has shown a stock of 200 quintals of copra which, according to the assessee, was only to satisfy the requirement of the Bank. It was also contended before the assessing authority that the difference in stock was due to driage. It was also contended before the assessing authority that the difference in stock was due to driage. The assessing authority did not accept the said contentions and had adopted the figures furnished before the Union Bank of India as the correct figure which resulted in the addition. The appellate authority confirmed the addition accepting the reasoning of the assessing authority. The assessee had filed a second appeal before the Income Tax Appellate Tribunal, Cochin Bench. 8. The Central Board of Direct Taxes has issued various circulars, Circular No. 423, dated 26th June 1985 and 432, 439, 440 and 441 all, dated 15th November 1985, 451, dated 17th February 1986, 453, dated 4th April 1986 and 472, dated 15th October 1986 (See Chaturvedi and Pithisaria's Income Tax Law, Fifth Edition, page 3179). As per the said circulars, the assessees were offered amnesty or immunity from penalties under the Income Tax and Wealth Tax and also from prosecution. The benefits of the aforesaid circulars were extended by Circular No. 472 upto 31st March 1987. Though the benefits of the circulars mentioned above were available even during the pendency of the assessment for the year 1983-84, the assessee had chosen to avail the benefits of the amnesty circulars only on 21st March 1987 i.e. just 10 days before the expiry of the period of amnesty available under Circular No. 472. 9. Circular No. 451, dated 17th February 1986 [Ext. R-2 (b)] is a clarification regarding the press note and circulars issued by the Ministry of Finance regarding declaration of higher income or wealth. The clarification is sought for in respect of Circular Nos. 423, 432, 439, 440 and 441 and the clarifications are issued in the form of questions and answers. Question. Nos. 1 and 2 and its answers read as follows: "Question No. 1. What will be the procedure required to be followed by the assessee who wants to declare income or wealth in respect of the past years? (a) in case where the assessments pertaining to those years are already completed; (b) in case where the assessments in respect of those years are pending; Answer. In cases where the assessments are already completed, the tax payer should approach the concerned Commissioner of Income Tax with the full disclosure of the amounts of income and /or wealth concealed in various years and should also file returns for the relevant years. In cases where the assessments are already completed, the tax payer should approach the concerned Commissioner of Income Tax with the full disclosure of the amounts of income and /or wealth concealed in various years and should also file returns for the relevant years. He should also produce evidence of payment of taxes before March 31, 1986. The filing of the returns will be regularised by issue of formal notices under S.148 of the Income Tax Act/Section 17 of the Wealth Tax Act. In cases where the assessments are pending, the tax payer should file revised return before the Income Tax Officer along with evidence of payment of taxes. Question No. 2. In respect of completed assessments, the question will arise whether the assessee should merely declare the income relevant to those years and pay the tax according to the rates prevalent in those years on such declared income or whether he is required to file the return of income showing the additional income? Answer. As mentioned above, he must file a fresh return of income including the additional income." The above will show that in cases where the assessments are already completed, the tax payer should approach the concerned Commissioner of Income Tax with the full disclosure of the amounts of income concealed and should also file returns for the said year. The assessee should also produce evidence of payment of taxes. The filing of the returns will be regularised by issue of formal notices under S.148 of the Income Tax Act. It also shows that the assessee must file a fresh return of income including the additional income. Question No. 4 is with regard to the immunity from penalty and prosecution. The answer is that the immunity from penalty and prosecution applies in all cases where the assessee admits the truth and pays taxes properly. Question No. 1:9 seeks clarification of the expression "before detection by the department. " The answer given is that if the Income Tax Officer has already found material to show that there has been concealment, that would mean the Department has detected the concealment and that if the Income Tax Officer only had prima facie belief, that would not mean concealment has been detected. " The answer given is that if the Income Tax Officer has already found material to show that there has been concealment, that would mean the Department has detected the concealment and that if the Income Tax Officer only had prima facie belief, that would not mean concealment has been detected. Question No. 26 seeks clarification as to whether in a case where an order has been set aside on appeal or assessment proceedings are pending under S.147 (a)/(b), whether the assessee can surrender the amount which is the subject matter of dispute and as to whether such surrender would be taken as suo motu declaration before the detection by the Department. The answer given is that such surrender cannot be taken as a suo motu declaration but naturally a lenient view will be taken if an assessee decides to turn honest even at this stage. Question No. 28, which is relied on by the appellants, is "Where an addition is contested in appeal, whether an assessee could make a declaration and agree to pay tax thereon?" and the answer is "Yes. The assessee should withdraw that appeal and make a declaration before the Administrative Commissioner. In such a case, a lenient view will be taken, though such a declaration cannot be taken as entirely voluntary." 10. As already stated, the benefit of the various circulars including Circular No. 451 was extended upto 31st March 1987 by Circular No. 472, dated 15th October 1986. So, the question to be considered is as to whether the appellants are entitled to the benefit of the aforesaid circulars. The stand of the Department is that since the appellants have filed the revised return purporting to be under the Amnesty Scheme after the detection of the concealment by the assessing authority, they are not entitled to the benefit of the amnesty circulars. Admittedly there was no search and seizure of the business premises of the partnership firm or its partners. The assessment was completed by making and addition of Rs. 1,47,888 towards unaccounted sales. According to the appellants, there was no justification for making the addition relying on the statement filed by the appellants before the Union Bank of India, Calicut for availing the loan and the accounts represents the correct state of affairs, if the driage of copra shown in the accounts is accepted. 1,47,888 towards unaccounted sales. According to the appellants, there was no justification for making the addition relying on the statement filed by the appellants before the Union Bank of India, Calicut for availing the loan and the accounts represents the correct state of affairs, if the driage of copra shown in the accounts is accepted. Though the assessing authority and the first appellate authority have taken the view that there was unaccounted sales to the tune of Rs. 1,47,888, the said question was pending before the final fact finding authority viz., the Income Tax Appellate Tribunal. Probably it is in view of the fact that the benefit of the amnesty circulars declared by the Central Government was due to expire on 31st March 1987 the firm would have chosen to settle the matter with the Department itself by availing the benefit of the Scheme. The revised return along with Ext. P-2 letter was submitted to the assessing authority on 2.1st March 1987 seeking the benefit of the aforesaid circulars. 11. As already noted, Circular No. 451 clearly provides that the benefit of the amnesty circulars referred to therein applies even in cases where the assessments are already completed. In a case where the assessment has been set aside on appeal and/or assessment proceedings are pending under S.147 (a)/(b), an assessee can surrender the amount which is the subject matter ci the dispute and further in a case where an addition is contested in appeal, the assessee can withdraw the appeal and make a declaration before the Administrative Commissioner. Thus, it would be clear that the circulars mentioned above apply even in the cases where appeals are pending and it is open to the assessees to withdraw the appeal and to declare the amount before the Administrative Commissioner. In such cases, even though the declaration cannot be taken to be entirely voluntary, a lenient view will be taken. Of course, Circular No. 451 clearly provides that in the case of assessees whose assessments are already completed, if they want to avail the benefit of the Amnesty Scheme in respect of the completed assessments, the assessees have to approach the concerned Commissioner of Income Tax with the full disclosure of the amounts of income and should also file a fresh return of income including the additional income. If an assessee approaches the Administrative Commissioner as provided above, in view of answers to Question Nos. 1, 2, 26 and 28, the Administrative Commissioner has to take a lenient view in the matter. Of course, the appellants did not approach the Administrative Commissioner as provided in the notification. The appellants had approached the assessing authority viz., the Income Tax Officer, A Ward, Calicut by filing the revised return and seeking for the benefit of the amnesty circulars. The Income Tax Officer did not either return the revised return by directing the appellants to approach the Administrative Commissioner, nor did he forward the same to the Administrative Commissioner for further action. However, after the filing of the criminal complaint, when the appellants took up the matter with the Administrative Commissioner, he declined to interfere stating that the Income Tax Officer has established concealment of income in the assessment year and that the same has been confirmed by the first appellate authority. As already noted, even in cases where assessments are completed and in cases where appeals are pending, the assessee can seek the benefit of the Amnesty Scheme and the Administrative Commissioner is obliged to take a lenient view considering the factual situation. The Administrative Commissioner, according to us, has not considered the matter in the light of the clauses in the various circulars as clarified in Circular No. 451. 12. The learned Single Judge has held that the Amnesty Scheme mentioned above does not apply. The learned Judge has observed that the amnesty period came to an end on 31st March 1986 and that the assessment order has been made prior to that date and the revised return was filed only on 21st March 1987, fourteen months after the expiry of the period of amnesty. It was also observed in the judgment that there is no disclosure involved since the income returned in the revised return is only the income which is assessed. We have already stated that the benefit of the Amnesty Scheme was extended upto 31st March 1987 by Circular No. 472, dated 15th October 1986. Probably, neither the appellants nor the Department had brought the said fact to the notice of the learned Single Judge. It is in those circumstances, the learned Judge happened to observe that the amnesty period came to an end on 31st March 1986. Probably, neither the appellants nor the Department had brought the said fact to the notice of the learned Single Judge. It is in those circumstances, the learned Judge happened to observe that the amnesty period came to an end on 31st March 1986. According to us, the Judge happened to hold that there was no disclosure so to say and that the scheme does not apply to the appellants, without properly adverting to the various questions and answers contained in Circular No. 451 which we have already referred to in this Judgement. In this circumstances, we are of the view that the learned Judge grossly erred in holding that the amnesty period came to an end on 31st March 1.986 and that the scheme does not apply to the appellants. 13. It must be noted that the main relief sought for by the appellants is for direction to the respondents to accept the revised return filed along with the covering letter Ext. P-2 as on filed under the Amnesty Scheme and to dispose of the return applying the circulars issued under the Annesty Scheme. The question as to whether the criminal case, C. C. No. 62/1987 filed by the Department against the appellants can be sustained will depend on the decision on the relief mentioned above. In this view of the matter, we do not propose to go into the (Directness of the findings of the learned single Judge that there is no prevision in the Code of Criminal Procedure for withdrawal of a private complaint or as to whether the appellants can seek for withdrawal of the criminal case. We are of the view that the learned single Judge erred in dismissing the writ petition. We accordingly set aside the Judgment in O. P. 6942/1987. 14. The respondents in their counter in the O. P. had stated that the appellants have filed a petition [Ext. R-2 (b)] before the Central Board of Direct Taxes en 8th October 1987 and that they have approached this Court without waiting for the result. Since the Administrative Commissioner has already taken a decision in the matter, we are of the view that the Central Board of Direct Taxes can be directed to consider Ext. R-2 (d) petition pending before it. The Central Board of Direct Taxes will consider the following matters while disposing of Ext. Since the Administrative Commissioner has already taken a decision in the matter, we are of the view that the Central Board of Direct Taxes can be directed to consider Ext. R-2 (d) petition pending before it. The Central Board of Direct Taxes will consider the following matters while disposing of Ext. R-2 (d) petition: (1) The assessment for the year 1983-84 was completed by making an addition of Rs. 1,47,888 representing the unaccounted sales mainly on the basis of the statement furnished by the assessee before the Union Bank of India, Calicut for availing . the loan. This, according to the respondents, will amount to detection. (2) An appeal against the assessment order as confirmed in appeal was pending before the Income Tax Appellate Tribunal, Cochin Bench and the same was withdrawn for the purpose of availing the benefit of the amnesty circulars. (3) Circular No. 451, Question Nos. 1, 2, 26 and 28, provided for benefit of the Amnesty Scheme in respect of the assessees whose assessments have already been completed and/or pending in appeal. If an assessee approaches the Administrative Commissioner by filing afresh return declaring his additional income even though it cannot be said to be taken as entirely voluntary, the Commissioner is obliged to take a lenient view in the matter, which has not been done in the present case. (4) The assessing authority initiated penalty proceedings under S.271 (1) (c) of the Income Tax Act against the appellants but the same was later dropped after the filing of the revised return along with Ext. P-2 petition in view of the answer to Question No. 4 of Circular No. 451. (5) The appellants also state that the firm had filed revised returns for the years 1980-81 to 1986-87 to avail of the benefits under the Amnesty Scheme and the Department had accepted all the returns filed under the Amnesty Scheme except the return filed for 1983-84, for which no reasons are given. The Central Beard of Direct Taxes, New Delhi is directed to dispose of Ext. R-2 (d) application pending before it in accordance with law and in the light of the observations and directions contained herein above within a period of four months from the date of receipt of a copy of this judgment. The appellants will also be afforded an opportunity of being heard before passing orders as directed above. 15. R-2 (d) application pending before it in accordance with law and in the light of the observations and directions contained herein above within a period of four months from the date of receipt of a copy of this judgment. The appellants will also be afforded an opportunity of being heard before passing orders as directed above. 15. An interim order of stay of further proceedings in C.C. 62/1987 of the Additional Chief Judicial Magistrate's Court Ernakulam was passed on 9th April 1992 in C.M.P. No. 3190/1992. The said stay is in force as on today. In the above circumstances, the said stay order will continue to be in force till the disposal of Ext. R-2 (d) application as directed above. The writ appeal is allowed as above.