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2003 DIGILAW 704 (PNJ)

Bawa Mahesh Singh v. Income Tax Officer

2003-05-14

S.S.SARON

body2003
Judgment S.S.Saron, J. 1. The petitioners have filed this petition under Section 482 of the Code of Criminal Procedure ("the Code" for short) for quashing the complaint under sections 276C and 277 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the assessment year 1985-86, filed against them (as reproduced in para. 1 of the petition) as also the summoning order dated September 17, 1987 (annexure P2), passed by the learned Chief Judicial Magistrate, Amritsar. 2. The facts leading to the case are that petitioners Nos. 1 to 3 are partners of the accused-assessee firm, M/s. Bawa Gurmukh Singh and Sons (petitioner No. 4) ("the firm" for short). The Income-tax Officer of District II (VI), Amritsar, filed a complaint on September 17, 1987, against the petitioners as also Bawa Ram Singh and Smt. Gian Bai, son and wife, respectively, of Bawa Gurmukh Singh. They have since died. It is stated in the complaint that the accused firm is engaged in the business of purchase and sale of timber, hardware (iron goods) and also deals in cement and jalies. It is alleged that all the partners are in charge of the business and conduct thereof of the firm and are responsible to it for the conduct of its affairs. The firm, it is alleged, filed the return of income regarding the accounting year relevant to the assessment year 1985-86 declaring its income as Rs. 1,34,092. 3. The return, it is stated, was verified in the prescribed form on page 4 by accused No. 2, Bawa Bhupinder Singh (petitioner No. 3) for himself and accused Nos. 3 to 6 who are the other partners of the firm. The return was inter-accompanied by trading accounts of timber, iron, cement and jali, profit and loss accounts all signed by the accused, Bawa Bhupinder Singh (petitioner No. 3) and the balance-sheet as on March 31, 1985. During the assessment proceedings the following position with respect to girders stock was shown and was detected : 282-MK..ek.htm 4. The Income-tax Officer examined the account-books of the firm and found that the balance of girders on April 14, 1985, was nil in the stock of the accused and that the firm had purchased 1244 girders during the period March 15,1985 to March 31,1985, as reflected in the accounts. The accused also produced bills to show the total purchase of girders during the aforesaid period. The accused also produced bills to show the total purchase of girders during the aforesaid period. The account books of the petitioner-firm showed that during the said period, i.e., March 15, 1985 to March 31, 1985, the number of girders, was 745 as on March 31, 1985. Therefore, the Income-tax Officer impounded the cash book, ledger, the purchase bills and sale vouchers vide his order dated February 17, 1986. In this manner, the closing stock as on March 31, 1985, had been declared at 554 girders, whereas the firm purchased 1244 girders between March 15,1985, and March 31,1985, and sold only 499 girders. As such, in the closing stock on March 31, 1985, the number of girders actually was 745. In this manner, the accused it is alleged had suppressed 191 girders in the closing stock as on March 31, 1985, and the value of the concealed stock came to Rs. 55,752. Opportunities are also stated to have been afforded to the firm to explain the discrepancy. The accused took adjournments but could furnish no explanation. Ultimately, a revised return was filed on March 7, 1986. The assessor, it is stated, had added Rs. 55,752, representing the value of the concealed stock in the revised return. This return was also verified by accused No. 2, Bhupinder Singh (petitioner No. 3), on page 4 in the prescribed form. This, it was stated to have been done with a view to wilfully attempting to avoid the payment of income-tax on the value of suppressed stock which would have the effect of enabling the accused to evade such tax. 5. On filing of the complaint, the learned Chief Judicial Magistrate, Amritsar, vide his order dated September 17, 1987 (annexure P2), summoned the accused for October 21, 1987, having found sufficient ground to proceed against them under sections 276C and 277 of the Act. 6. Shri Sukhbir Singh, learned counsel appearing for the petitioners, has contended that the official of the Income-tax Department had asked for information which was furnished. It is contended that during discussion and talk of settlement, the firm filed its revised return in accordance with the circular on the clarification issued by the Income-tax Department and on the assurance given on January 2,1986, by the Chief Commissioner. It is also contended that the income-tax authorities accepted the revised return and imposed a penalty of Rs. It is contended that during discussion and talk of settlement, the firm filed its revised return in accordance with the circular on the clarification issued by the Income-tax Department and on the assurance given on January 2,1986, by the Chief Commissioner. It is also contended that the income-tax authorities accepted the revised return and imposed a penalty of Rs. 34,488 for the concealment of tax in their return and filing of fake return for the assessment year 1985-86. The firm filed an appeal before the Commissioner of Income-tax (Appeals), Amritsar, which was dismissed. Thereafter, second appeal was filed before the learned Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, (for short "the Tribunal"), which was accepted vide order dated September 3, 1993, and the orders of the authorities below providing for penalty for concealment of income and for filing false return, was set aside. The copy of the order of the Tribunal which is placed on record as annexure P1 has been referred to. 7. In view of this, it is contended that the continuation of criminal proceedings in pursuance of the impugned order dated September 17, 1987 (annexure P 2), passed by the learned Chief Judicial Magistrate, Amritsar, are not warranted. It is also contended that in any case, the returns were filed on behalf of the firm by Bawa Bhupinder Singh (petitioner No. 3) who is the managing partner of the firm, and is handling its day to day business and the other partners are sleeping partners. Besides, two of the partners, namely, Bawa Ram Singh and Smt. Gian Bai, have since died. Therefore, the proceedings it is contended are liable to be quashed and in any case initiated only against Bawa Bhupinder Singh (petitioner No. 3). 8. In response Shri N. L. Sharma, advocate, learned counsel for the respondent, states that the petitioners are not entitled to the benefit of the circular and that the revised returns were filed after the concealment was detected by the income-tax authorities. It is contended that the present case is not a case of voluntary disclosure which would not warrant the initiation of criminal proceedings. Therefore, it is contended that the initiation of criminal proceedings is just and proper in the circumstances of the case. 9. It is contended that the present case is not a case of voluntary disclosure which would not warrant the initiation of criminal proceedings. Therefore, it is contended that the initiation of criminal proceedings is just and proper in the circumstances of the case. 9. In order to appreciate the respective contentions urged by learned counsel for the parties the relevant provisions of sections 276C and 277 of the Act in respect of which the petitioners are being prosecuted may be noticed, which read as under : "276C. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,- . . . 277. If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable." 10. To attract the above provisions, the complainant is required to establish that the accused have made a statement in any verification under the Act, or rules thereunder or has delivered an account or statement which is false and which he either knows or believes to be false or does not believe to be true. 11. During the pendency of the present petition, the petitioner filed Criminal Miscellaneous No. 46407 of 2001 to place on record a clarification issued in respect of Circular No. 441 dated November 15, 1985 (see [1985] 156 ITR (St.) 165), declaring the higher income or wealth. It is contended that one of the grounds of challenge is that the case of the petitioners is covered under the amnesty scheme and the revised income-tax return filed by the petitioners was under the said scheme and the authorities had voluntarily accepted the return. In terms of the clarification issued to the said circulars, it is contended that it has been specifically clarified that where the assessee makes a true and full disclosure of his income, he is entitled to immunity from prosecution and penalty. The criminal miscellaneous is liable to be allowed as the circular appended to the petition is necessary for the determination of the controversy. The criminal miscellaneous is liable to be allowed as the circular appended to the petition is necessary for the determination of the controversy. The same is thus taken on record and the criminal miscellaneous stands allowed. 12. A perusal of the said circular shows that certain clarifications were issued regarding the press note and circulars issued by the Ministry of Finance regarding declaration of higher income or wealth. It is stated that the clarifications are issued on the questions raised at different places on the press note of the CBDT and Circular No. 423, dated June 26,1985 (see [1985] 155 ITR (St.) 45), and Circulars Nos. 432 (see [1985] 156 ITR (St.) 162), 440 (see [1985] 156 ITR (St.) 164) and 441 (see [1985] 156 ITR (St.) 165) all dated November 15, 1985, issued by the CBDT regarding declaration of higher income or wealth. The relevant questions and answers in terms of the said circular for the purpose of the present petition are as follows : "Question No. 1 : What will be the procedure required to be followed by the assessees 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 cases where the assessments in respect of those years are pending. Answer : In cases where the assessments are already completed the taxpayer 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 Section 148 of the Income-tax Act/section 17 of the Wealth-tax Act. In cases where the assessments are pending, the taxpayer should file revised return before the Income-tax Officer along with evidence of payment of taxes. Question No. 4 : The income-tax circulars are not very clear as to whether the immunity from penalty and prosecution is guaranteed to the assessee unlike the circular in respect of wealth-tax which appears to be clear on this point. Answer : The immunity from penalty and prosecution (sic is) applied in all cases whether of income-tax or of wealth-tax where the assessee admits the truth and pays taxes properly." 13. Answer : The immunity from penalty and prosecution (sic is) applied in all cases whether of income-tax or of wealth-tax where the assessee admits the truth and pays taxes properly." 13. The answer to question No. 1, evidently shows that an assessee should produce evidence of payment of taxes before March 31,1986, and the filing of returns would be regularised by issue of formal notices under Section 148 of the Act. Besides, in cases where the assessments are pending, the taxpayer is to file a revised return before the Income-tax Officer along with the evidence of payment of taxes. 14. It is not in dispute that a revised return was filed during the period of the amnesty scheme declaring Rs. 55,752 as the value of concealed stock which represented the cost of 191 girders, i.e., 745 girders minus 554 girders. The return was accordingly revised to Rs. 1,89,844. The Income-tax Officer accepted the revised return and framed the assessment on the same day. This procedure was completed on March 7,1986, i.e., before March 31, 1986, as was clarified in answer to question No. 1 referred to above. The assessment order records that while filing the revised return, the assessee requested for immunity from penalty for concealment and waiver of interest. However, the assessing authority stated that he was unable to accept the request because no immunity could be given where the concealment had been established. This finding of the assessing authority though upheld in the first appellate order of the Commissioner of Income-tax (Appeals) but was set aside by the learned Tribunal vide its order dated September 3, 1993 (annexure P1). The learned Tribunal while disposing of the appeal made the following observations : "That facts of the case are peculiar, inasmuch as, the assessee after the Income-tax Officer made an enquiry about the shortage of girders came up with the surrender in accordance with the calculation of the Assessing Officer and the assessment was framed immediately, which clearly established the assessees case that there was full co-operation. Though judicial precedents were cited by both the representatives we would not involve ourselves with the same because of the consistent view that the amnesty scheme and the assurance given by the revenue authorities. Though judicial precedents were cited by both the representatives we would not involve ourselves with the same because of the consistent view that the amnesty scheme and the assurance given by the revenue authorities. Some of which are noted above, clearly saved the assessee from consequences like penalty matter under Section 271(1)(c) and, therefore, the learned Commissioner of Income-tax (Appeals) should have cancelled the penalty instead of rejecting the assessees appeal." 15. Another aspect which is evident from the circular is the question raised in question No. 4 regarding immunity from penalty and prosecution being guaranteed to the assessee. It has been clarified that immunity from penalty and prosecution applies in all cases whether of income-tax or of wealth-tax where the assessee admits the truth and pay taxes properly. The said circular which provides for immunity from prosecution in the event of disclosure. 16. Learned counsel for the respondent, however, on the strength of the judgment of the Hon ble apex court in P. Jayappan V/s. S.K. Perumal, First ITO [1984] 149 ITR 696, contends that the criminal court no doubt has to give due regard to the result of any proceedings 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, however, it does not mean that a result of the proceedings under the Act would be binding on the criminal court which has to judge the case independently on the evidence before it. He also relies upon a judgment of the Hon ble Kerala High Court in C.G. Balakrishnan V/s. ITO [1988] 171 ITR 1 to contend the fact that the final assessment order was set aside, was no ground to quash the conviction. There is no doubt to the proposition raised by learned counsel for the respondent. However, in P. Jayappans case [1984] 149 ITR 696, it was held by the Hon ble Supreme Court that in an appropriate case the result of proceedings under the Income-tax Act which has a bearing on the question in issue, the criminal court may drop the proceedings in the light of an order passed under the Act. 17. However, in P. Jayappans case [1984] 149 ITR 696, it was held by the Hon ble Supreme Court that in an appropriate case the result of proceedings under the Income-tax Act which has a bearing on the question in issue, the criminal court may drop the proceedings in the light of an order passed under the Act. 17. In the case in hand, it is evident that the circulars issued by the income-tax authorities themselves provide an immunity from prosecution where the assessee admits the truth and pays the taxes properly. Nothing has been shown from the circular that the case would not be covered in the event of concealment. Rather, question No. 7 of the said circular clinches the issue which reads as under : "Question No. 7 : Where the investigations in the case of persons other than the assessee indicate concealment of income by the assessee and the assessee makes a true and full disclosure of his income, would be entitled to immunity under these circulars. Answer : Yes." 18. Therefore, having regard to the order dated September 3, 1993 (annexure P1), passed by the Tribunal and also the various questions and answers clarified in the circular referred to above, it is evident that concealment of income ipso facto would not entail criminal prosecution but rather ensures amnesty from prosecution. The case law referred to by learned counsel for the respondent, therefore, is inapplicable to the case in hand. This is more so when the authorities under the Act in exercise of their legally permissible powers, held out a representation which is not contrary to or offends any legal provision of law and does not fetter any legislative or quasi-legislative powers and is even otherwise not opposed to public policy. The petitioners having acted upon the same, cannot be placed at a disadvantageous position to their detriment. The petitioners having acted on the representation held out are entitled to the benefits accruing from the same. The petitioners having acted upon the same, cannot be placed at a disadvantageous position to their detriment. The petitioners having acted on the representation held out are entitled to the benefits accruing from the same. The offences, if any, which are punishable under sections 276C and 277 of the Act in respect of which the complaint has been filed, fall under Chapter XXII of the Act and in terms of Section 279(2) of the Act, would be deemed to have been compounded which provides for compounding of any offence under Chapter XXII before or after the institution of the proceedings by the Chief Commissioner or the Director General. The Explanation to Section 279(2) has been held by the Hon ble Supreme Court in the case of Y.P. Chawla V/s. M.P. Tiwari [1992] 195 ITR 607, to be in the nature of a proviso of Section 279(2) of the Act with the result that the exercise of power by the Commissioner under the said section has to be subject to the instructions issued by the Board from time to time. The Explanation empowers the Board to issue orders, instructions or directions for the proper composition of the offences under Section 279(2) of the Act and further specifically provides that directions for obtaining previous approval of the Board can also be issued. 19. Therefore, having regard to the fact that the case of the petitioners is covered by the instructions and clarifications which in no uncertain terms provides for immunity from criminal prosecution. Besides, the penalty imposed on the petitioners by the Income-tax Officer has been set aside by the Tribunal vide its order dated September 3, 1993, (annexure P1). Therefore, it cannot be said that the petitioners are not entitled to be absolved from criminal prosecution in view of the concealment, which concealment in fact entitles them to immunity from prosecution in terms of question No. 7 and the answer thereto in the circular under reference. As such it is to be taken that the offences attributed to the petitioners have been compounded and the continuation of criminal prosecution would be an exercise in futility. 20. For the foregoing reasons, the petition is allowed and the complaint and the summoning order dated September 17, 1987, are quashed.