Judgment :- (Petition under Section 482 of Cr.P.C praying that in the circumstances stated in the grounds filed therewith, the High Court will be pleased to quash the C.C.No.83/06 on the file of the Spel. Judge for Economics Offences, Hyderabad.) This Criminal Petition is filed under Section 482 of Cr.P.C. by the accused to quash the proceedings in C.C.No.83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, filed for the offences punishable under Sections 276-C, 277 and 278-B of the Income Tax Act, 1961 (for short ‘the Act’). 2) The Deputy Commissioner of Income Tax, Circl-16 (3), Hyderabad, filed the above complaint. The first petitioner is M/s. Prabhava Organics Private Limited and the second and third petitioners are the Managing Director and Director of the said company respectively. They were in-charge and responsible for day-to-day affairs and conducting the business. The first petitioner-company filed its income tax return for assessment year 1995-96 mentioning that the total income of the company is ‘NIL’, after adjusting the brought forward losses of earlier years to an extent of Rs.34,74,157/-. While processing the returns of the first petitioner-company under Section 143 (1) (a) of the Act, the income tax officials disallowed the excess depreciation of Rs.2,65,741/- and donation of Rest. 5,500/-. Notice under Section 142 of the Act was issued to the first petitioner-company directing to produce books of accounts and other relevant documents in support of the returns and also requested to furnish such other information by way of questionnaire. The assessing officer, during the course of scrutiny proceedings, once again issued a detailed questionnaire asking the assessee company to file confirmation letters and the exact postal addresses and sources for the unsecured loans given to the assessee company. The confirmation letters given by four persons do not indicate that they have sufficient funds to advance the loans to the assessee company and source of money explained by them does not appear to be genuine. The burden of proof of providing the worthiness of creditors lies on the assessee company and there was no evidence of giving loans to the petitioners. Therefore, there was an unexplained income of Rs.7,70,000/-. The petitioner deliberately concede the income and the filed returns with false information. Hence, the petitioners are liable for penalty under Section 271 (1)(c) of the Act to a tune of Rs.3,54,200/-. Therefore, there was an unexplained income of Rs.7,70,000/-. The petitioner deliberately concede the income and the filed returns with false information. Hence, the petitioners are liable for penalty under Section 271 (1)(c) of the Act to a tune of Rs.3,54,200/-. 3) The petitioners, being aggrieved by the order of assessing officer, preferred an appeal bearing No. ITA No. 216/R-16/ACIT-2 (3)/CIT (A)-V/2005-06, before the Commissioner of Income Tax (Appeals)-V, Hyderabad, The said Commissioner passed an order on 23.01.2006 confirming the levy of penalty of rest. 3,54,200/-, ordered by the assessing officer. Therefore, the present complaint has been filed under Sections 276-C, 277, 278-B of the Act to punish the petitioners according to law. The petitioners, being aggrieved by the Court below taking cognizance of the alleged offences, filled the present Criminal petition under Section 482 of Cr.P.C. to quash the proceedings. 4) In the present quash petition, the learned counsel for the petitioners contended that the first petitioner is a Private Company Limited incorporated under the Indian Companies Act. It is engaged in the manufacturing of bulk drugs, chemicals and intermediataries. Its factory is located at Bollarum of the outskirts of Hyderabad and was running in three shifts by engaging 120 workmen. The Commissioner of Income Tax (Appeals) thought his order dated 30.03.1999, is set aside the addition and directed the assessing officer to re-examine the issue de novo. After examining the assessing officer, not only retained the addition of Rs.7,70,000/- but also added Rs.5,33,500/- as a new item, while confirming the old item of Rs.7,70,000/-. After remained, a minimum penalty of Rs.3,54,200/- was levied on the first petitioner for failing to prove its claim of genuineness of its loans. Being aggrieved by the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad, the petitioners preferred an appeal before the Income Tax Appellate Tribunal, Hyderabad and it is pending. He further contended that where the assessed returned the loss and the AAC reduced the loss, the assessed could not be said to have suppressed any income and therefore, penalty under Section 271 (c) of the Act was not levyable. Sri S.R. Ashok, learned senior counsel appearing for the petitioners drew the attention of this Court to certain decisions in support of the said contention. He further contended that in view of the settled law, the prosecution ex facie is illegal and cannot stand. Sri S.R. Ashok, learned senior counsel appearing for the petitioners drew the attention of this Court to certain decisions in support of the said contention. He further contended that in view of the settled law, the prosecution ex facie is illegal and cannot stand. He further contended that section 276 (c) of the Act ahs no application to the facts of the case. As there is no evasion of tax, he requested to quash the proceedings against the petitioners. 5) In the light of the above contentions raised by the learned counsel for the petitioners, the point for consideration is whether the proceedings against the petitioners in C.C.No. 83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, are liable to be quashed? 6) The filing of the returns by the first petitioner-company for the assessment year 1995-96 is not disputed. The Company had shown the income for the said year as ‘NIL’ on account of the unsecured loans obtained by them to a tune of Rs.13,81,900/-. Out of them, three loans were found to be genuine and four loans to a tune of Rs.7,70,000/- does not appear to be genuine. Therefore, the said amount was added to the income of the petitioners and the assessment order has been passed imposing penalty on the petitioners. After assessment of the matter, the assessing officer added Rs.5,53,500/- to the income, but it was deleted by the Commissioner of Income Tax in an appeal preferred by the petitioners, by confirming the order of the assessing officer. So far as the addition of income of Rs.5,33,500/-, being aggrieved by the order of the Commissioner of Income Tax, an appeal was said to be preferred before the Income Tax Appellate Tribunal, Hyderabad and it is pending. 7) The contentions of the learned counsel for the petitioners are twofold: firstly since the appeal before the Income Tax Appellate Tribunal, Hyderabad is pending, the prosecution of the petitioners is illegal and secondly where the assessed returned the loss AAC reduced the loss, the assessed could not be said to have suppressed any income. Therefore, the penalty under Section 27 (1) (c) of the Act cannot be levied and in such a case, the prosecution cannot be maintained. Therefore, the penalty under Section 27 (1) (c) of the Act cannot be levied and in such a case, the prosecution cannot be maintained. 8) In Prakash Chand v. Income Tax Officer (1982 Income Tax Reports Vol.134 page 8 (P & B HC) the Punjab and Haryana High Court observed that the prosecution was launched against the assessee for the offence under Section 277 of the Act on the basis of false returns and false accounts showing inflated items of purchases. During pendency of criminal proceedings in penalty proceedings for concealment of income, the Tribunal examined the material and arrived at a funding that none of the income tax authority established clearly that particularly items of purchase were inflated and as such there was no proof that the assessee had concealed the income or furnished inaccurate particulars and cancelled the penalty. Thereupon, the assessed filed a writ petition to quash the criminal proceedings. The Punjab and Haryana High Court, after considering the material, held as under: “In view of the finding of the Tribunal that there was no concealment and no inaccurate accounts were filed by the petitioners, the criminal proceedings against the assessed could not continue and were liable to be quashed.” 9) In UTTAM CHAND AND OTHERS v. INCOME TAX OFFICER, CENTRAL CIRCLE AMRITSAR (1982 INCOME TAX REPORTS VOL.133 (SC) PAGE 99) the Supreme Court observed that a firm was assessed for several years as a registered firm. For the assessment year 1969-70, the Income Tax Officer cancelled the registration on the ground that the firm was not genuine, on the basis of the statement of ‘J’, one of the alleged partners (a lady,) that the signatures in the records were not hers and that the was not a partner. The Tribunal on an appraisal of the material on record found that ‘J’ was a partner of the firm and that the firm was genuine and set aside the cancellation order if the Income Tax Officer. The Tribunal on an appraisal of the material on record found that ‘J’ was a partner of the firm and that the firm was genuine and set aside the cancellation order if the Income Tax Officer. In the meantime, the Income Tax Officer initiated prosecution of the partners of the firm under Section 277 of the Act for having filed false returns and the Punjab and Haryana High Court, in a revision petition for quashing the prosecution against the firm, held that the Tribunal’s finding was not binding on the criminal court, and cannot be a bar to the prosecution proceedings and that the same may be produced before the criminal court if admissible as evidence. On appeal to the Supreme Court by way filing special Leave Petition, it was held as under: “In the view of the finding recorded by the Appellate Tribunal that ‘J’ was a partner of the firm and that the firm was genuine, the assessee could not be prosecuted for filing false returns.” 10) In the above judgments, it is indicated that in the event of the Tribunal comes to a conclusion that there were no false returns, the criminal proceedings are liable to be quashed. It is further indicated that the prosecution was launched before the decision rendered by the Tribunal. Since pendency of the proceedings before the Tribunal is not a bar, I hold that the prosecution is maintainable during pendency of the appeal before the Income Tax Appellate Tribunal, but the continuation of the prosecution depends on the judgment of the Income Tax Appellate Tribunal. It is for the Tribunal to give a decision whether the order passed by the assessing officer is correct or not. If the Income Tax Appellate Tribunal gives a judgment in favour of the petitioners, the prosecution may not be maintainable. 11) In the light of the above circumstance, the proceedings against the petitioners in C.C.No.83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, are not liable to be quashed during pendency of the appeal before the Income Tax Appellate Tribunal. However, I am inclined to say the prosecution proceedings till a decision rendered by the Income Tax Appellate Tribunal in this matter. 12) Accordingly, the Criminal Petition is dismissed subject to the above findings.