Delhi High Court
Harprashad & Co. Ltd. vs A.N. Pahuja, Inspecting Assistant, ... on 18 July, 1996
Equivalent citations: ILR1997DELHI15, [1998]229ITR101(DELHI)
JUDGMENT Usha Mehra, J.
(1) A very short and interesting point has been raised in this petition; whether criminal proceedings to continue in spite of quashing of the order of penalty by the final authority under the Income Tax Act i.e. Income Tax Appellate Tribunal (hereinafter called the Tbunal) ?
(2) Petitioners M/s Harprashad Company Limited & Ols. (hereinafter called appellant company) filed its return declaring loss of Rs.4,48,578.00 . The Assessing Officer while processing the return noticed that one of the items of expenditure representing payment of commission to Smt.Ritu Nanda was not justified and, therefore, asked the explanation. Statement of Smt. Ritu Nanda was recorded by the Income Tax Officer (Circle) Circle-1 on 20th March, 1982 wherein she testified that she procured the contract for the appellant company as she had been visiting Iran frequently and was known to M/s Essar & Company in Iran. She was the Director of the appellant company but resigned in 1977. She had set up her own marketing consultancy service as a proprietary concern. She charged commission at the rate of 3% for procuring the contract. Out of this 3% she paid 1% to M/s Jupiter Trading Corporation because the said M/s Jupiter Trading Corporation helped her in procuring the contract in Iran. She also obtained contract for appellant company from the Indian Railway Authority with the help of M/s Essar & Co. The assessing Officer in spite of this information disallowed the entire commission amounting to Rs.2,74,617.00 . He held it to be of non - business purpose, the appellant company preferred appeal. The Commissioner of Income Tax (Appeal), (In short Cit, Appeal) allowed deduction of 1% commission paid by Smt.Ritu Nanda to M/S Jupiter Trading Corporation. Against this order both the parties i.e. assessee as well as the revenue authority filed appeal before the Tribunal. Order of the Cit (Appeal) was upheld by the Tribunal thereby allowed the deduction of 1% commission paid by Ritu Nanda to M/s Jupiter Trading Corporation.
(3) After this order was passed by the Tribunal, the respondent filed a criminal complaint against the appellant company beside imposing penalty of Rs.l,85,730.00 . The basis of the complaint as put up by the revenue authority is concealment of income and furnishing of inaccurate particulars of the income in the return filed by the appellant for the relevant assessment year 1979-80, corresponding to the accounting year ending 30th June, 1978. Against that order of penalty, the appellant preferred an appeal. Commissioner of income Tax, how ever, confirmed the order of penalty vide his order dated 5th March, 1986. Against that .order of the Cit, this appellant preferred an appeal before the Tribunal. During the pendency of the criminal complaint, the Tribunal allowed the appeal of the appellant on 11th February, 1988 thereby negating the charges of concealment and of filing in-accurate return. Tribunal also set aside the penalty proceeding.
(4) After the order of the Tribunal dated 11th February,1988 thereby knocking out the basis of the complaint, the appellant filed an application before the Icarned Additional Chief Metropolitan Magistrate, Delhi, seeking quashing and dropping of the criminal proceedings and discharge of the appellants. The said application of the appellant was dismissed by the impugned order on 7th August, 1995 holding that in the quantum of assessment proceedings before the Tribunal contrary view was expressed, therefore, the quashing of the penalty proceedings by the Tribunal is of no consequences. Further that since the finding of the Tribunal on the quantum side was inconsistent with its observation on the penalty side, therefore, it cannot be said that the appellants have been exonerated by the Tribunal. The question whether Ritu Nanda paid the commission bonafide being a question of fact the Criminal Court has the jurisdiction to arrive at its own finding after recording evidence.
(5) Aggrieved by this order, the present petition has been preferred, inter alia, in the ground that since the Tribunal had quashed the penalty proceedings thereby holding that there was no concealment or in-accurate statement furnished by the appellant, therefore, the prosecution based or. the same cause of action and facts cannot continue. In this regard Mr.B.Mohan, counsel for the appellant placed reliance on the decision of Supreme Court in the case of Uttam Chand & Ors.v. Income Tax Officer, Central Circle, Amritsar-1 (1982) 133 Itr page 909. In that case the Supreme Court has observed that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act. It has been farther observed that the finding of the Tribunal on the question of facts is final. Once the Tribunal quashed proceedings which formed the basis of the complaint before the criminal Court, then such a criminal prosecution based on those facts cannot survive. To the same effect is the observation of Supreme Court in the case of S.P.Sales (2) Corporation V.S.R. Sikdar (1993) 113 Taxation 203 (SC). In this case also Apex Court observed that after the prosecution has been launched under the Income Tax Act, the Tribunal having cancelled the penalty holding that there was no concealment and quashed the penalty in view of the tribunal's decision, complaint against the assessee no longer survives. Reliance was also placed on the decision of Supreme Court in the case of P.Jayappan Vs.S.K. Peruman, First Income Tax Officer, Tuticorin . Ralying on this judgment Mr. B. Mohan contended that the Apex Court while analysing various provisions of the Act concluded that: "SECTION 279(1A) of the Act merely states that a person shall not be proceeded against for an offence under Section 276C or Sec- Section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him under Clause (iii) of sub-section (1) of Section 271 his been reduced or waived by an order under section 273. It is only where the Commissioner reduces or waives the penalty imposed under Section 271(i)(iii) of the Act in exercise of his discretion under Section 273A. Section 297(1A) comes into operation and acts as a statutory bar for proceeding with the prosecution under Section 276C or Section 277.
(6) In the instant case, since the tribunal has quashed and waived the penalty by giving a clear finding that there was no concealment or furnishing of inaccurate statement that the commission was in fact paid, therafore, the prosecution on that very account cannot continue. Since the basis of the prosecution has been knocked out hence such a prosecution be not allowed to continue. To support his argument he also placed reliance of the decision of the Bombay High Court in the case of M/s Shastri Sales Corporation & Ors. Vs. Income Tax Officer Ward (4) No. 3 (3) 1996 Criminal Law Journal 449.
(7) Mr. R. D. Jolly appearing for the Revenue Department, however, contended that appellant committed three offences under three different heads of the Act namely under Section 276(C)(1), second offence under Section 277 and third under Section 278. The addition made by the I.T.O. and the Commissioner has not been set aside by the Tribunal. Moreover, on the assessment of quantum side the Tribunal had given a categorical decision holding that deduction of the commission of 2% kept by Ritu Nanda who was a Director of the Company could not be allowed. This decision of the Tribunal was prior to the decision on the penalty side. Moreover, the decision on quantum of assessment side is still pending by way of reference of the High Court. Hence no finality can be attached to the decision of the Tribunal on the quantum of assessment side. Hence the prosecution has to continue. Even otherwise in the case of P. Jayappan (Supra) the Supreme Court in no uncertain words held that the proceedings before the criminal court cannot be quashed. On merits beside disallowing commission to Ritu Nanda other amounts have also been disallowed by the Revenue authority for which the evidence has to be led before the criminal Court. Moreover, the quashing of penalty proceedings by the Tribunal has no bearing on the criminal trial. To support his argument he placed reliance on the following decisions:-Ashok Biscuit Works and Ors. V. Income Tax Officer, E-Ward, Circle Ii, Hyderabad (1988) 171 Itr 300, (5) Dharma Pratishthan & Ors. Vs. Miss B. Mandal, Inspecting Assistant Commissioner of Income Tax & Anr. (1988) 173 Itr 487, (6) General Sales Pvt. Ltd. & Ors. Vs. Gopal Mukherjee, Income Tax Officer, Central Circle Viii, New Delhi & Ors. (1987) 166 Itr page77,(7) General Sales Pvt. Ltd. & Other Vs. Gopal Mukherjee, Income Tax Officer, Central Circle Viii, New Delhi & Ors. (1987)166 Itr 87 (SC) (8) and Kejriwal Iron Stores Vs. Commissioner of Income Tax (1988) 169 Itr page 12. (9) (8) Admittedly, for the assessment year 1979-80 in the return filed by the appellant, all income including the expenditure on the commission paid to Smt. Ritu Nanda had been declared. The first appeal preferred by the appellants on the assessment side was decided against the appellant. After that decision of the Tribunal, the Revenue authority imposed penalty on the appellant on the ground that there was a concealment of income and filing of inaccurate statements. That the appellant had evaded or caused to evade the tax, hence initiated prosecution proceedings under Section 276(0(1), 277 read with Section 278 of the Act. It is an admitted case of the parties that on penalty being imposed, the appellant preferred an appeal. The Tribunal set aside that order and while doing so held that the facts of this case clearly show that there was no concealment of facts and thus ordered for the cancellation of the penalty. In view of these admitted facts we have to see what Section 276C(1) says and whether in view of the facts stated above the complaint of the revenue authority can continue under Section 276C(1). Section 276C(1) is reproduced as under :- "276C-WILLFULattempt to evade tax etc. (1) If a person willfully 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- (i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) In any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."
(9) In order to attract this provision the Revenue Authority was to show that there was willful attempt by the assessee to evade the tax. But in this case the final fact finding authority i.e. the Tribunal in no uncertain words has held that there was no evasion by the assessee. I would like to produce the observations of the Tribunal wherein in spite of its earlier order in the proceedings in respect of the quantum of assessment this Tribunal while considering order of penalty came to the conclusion that the penalty was not leviable and observed that in quantum proceedings though it had held that no services were rendered by Ritu Nanda, however, but her role in procuring orders and paying commission to M/s Jupiter Trading Corporation was upheld by it. This circumstance weighed heavily with Tribunal because according to it the earlier Tribunal allowed the deduction of I % commission paid by Ritu Nanda to M/s Jupiter Trading Corporation which clearly show that she rendered service to the appellant company and the same was recognised by the Deptt. as well as by the then Tribunal. Parasl2 & 15 of the order of the Tribunal are reproduced as under :-
"12.The above approach cannot be criticised or adversely commented upon because it was entirely for the appellant company to adduce unrebutable evidence to justify the disputed claim of expenditure, but when it came to levy of penalty, the very fact that commission payment came for review and the claim was not held to be bogus, but termed as excessive, diluted the revenue's allegation of any concealment of charge. At the cost of repetition, it must be observed that though Mrs. Ritu Nanda's role of for obtaining the Iranian Railway contract has been accepted in as much as the entire amount paid by her to M/s Jupiter Trading Company has been held to be allowable deduction her services are held to be free in respect of assessment year under reference, though she had resigned as a Director of the Company sometime after 1976 i.e. in 1977, but before the contract was obtained and much before the start of the relevant accounting period in which commission was paid, there being no dispute regarding the period of services, "15.In the present instance acceptance of part of the commission for business purposes in itself established that it is not a case where limb (A) of the explanation applies and secondly the facts are clear and loud that the requirements of other limb were completely satisfied inasmuch as not only a plausible explanation was offered, but the factum of services through Mrs. Ritu Nanda came to be accepted. Therefore, whatever may be the reason which prompted disallowance of part of the commission, it is not a case where rigours of penalty proceedings for concealment should have been considered much less there being any justification for levying the penalty. Accordingly, cancelling the penalty we allow the appeal."
(10) This shows that even the revenues authorities in a way accepted the role of Mrs. Ritu Nanda, and therefore, allowed the deduction so far as l% commission paid by her to M/s Jupiter Trading Company was concerned. Mr. B. Mohan's contention has a weight when he contended that if Ritu Nanda had not procured the contract through M/s Jupiter Trading Corporation then even 1% commission out of her 1% commission should also have been disallowed, because it was not the appellant company who paid the commission to M/s Jupiter Trading Corporation. The appellant company paid the commission of 3% to Ritu Nanda who in turn paid out of her commission to M/s Jupiter Trading Corporation. Therefore, in view of the facts that revenue authority accepted this part of appellant's version and in particular on Ritu Nanda's statement authority allowed 1% deduction, it now cannot be said that there was a willful attempt on the part of the appellant to evade or conceal the tax. Since the final fact finding authority i.e. the Tribunal in the penalty proceedings concluded that there was no concealment or willful attempt to evade the tax, I see no reason why on those very facts and grounds, criminal .proceedings should continue. Supreme Court in P. Jayappan's case (Supra) observed that provisions of Section 279(I A) (which are reproduced herein below) operates as a bar for proceeding with the prosecution under Section 276C or 277, once the penalty proceedings on the same facts has been quashed by the authority under the Act. "SECTION 279. Prosecution to be at instance of Chief Commissioner or Commissioner; (1A) A person shall not be proceeded against for an Offence under Section 276C or Section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him under clause (iii) of sub-section (1) of Section 271 has been reduced or waived by an order under Section 273A."
(11) The Apex Court. in P. Jayappan's case (Supra) has even gone to the extent of saying that in appropriate cases the criminal Court may adjourn or postpone the sharing of a criminal case in exercise of its discretionary power under Section 309 of the Code of Criminal Procedure if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may also take into consideration the order to be passed therein. In P. Jayappan's case since the decision of the Tribunal was awaited and that appellant expected that decision of the Tribunal would be in his favour, therefore, wanted quashing of the criminal proceedings, it was in this background the Apex Court observed that the prosecution in such circumstances cannot be quashed on the ground of expectation that penalty proceedings by the Tribunal was likely to be decided in appellant's favour. But that is not the position in the case in hand. Here the decision of the Tribunal on the penalty proceedings has already been rendered in favour of appellants. Therefore, the bar created under Section 279(IA) of the Act would come into operation so for as prosecution under Section 276C and 277 are concerned. Section 277 of the Act deals with the false statements and the verifications. Since I have already observed above that the Tribunal while cancelling the penalty observed that there was no falsehood committed either by the appellant or Ritu Nanda and that complete satisfactory and plausible explanation had been offered by the appellant as well as by Ritu Nanda which was accepted by the revenue authorities, hence, the penalty proceedings on the ground of concealment or false statement could not survive. Having said so the prosecution on the same ground, to my mind, cannot survive. In the case of S. P. Sales Corporation (Supra) the Supreme Court in no uncertain words held that once the penalty imposed by the revenue authority has been knocked out by the Tribunal then the prosecution on the same fact no longer survive. Section 278 deals with the abetment of false returns. Ritu Nanda has been imp leaded in this criminal case on the ground of being abettor. Respondent has tried to apply the provisions of Section 278 of the Act. But unfortunately on the facts on record the provisions of Section 278 of the Act are not attracted. The Tribunal after considering all the facts placed on record came to the conclusion that Ritu Nanda did not make false statement and that Ritu Nanda had not concealed any fact. Moreover, the Revenue authority accepted her statement, and thereafter, allowed 1% deduction out of the commission paid to her. By treating this payment as not bogus but excessive the Tribunal observed that this act itself was sufficient to dilute the Revenue Authority's allegations of any concealment. In view of these clear findings by a final authority on the facts it does not lie in the mouth of the respondent to say that the provisions of Section 278 get attracted in this case. In the case of Kanshi Ram Wadhwa V. Income Tax Officer, Kurukshetra (6) (1984) 145 Itr 109 (SC) Hon'ble Mr. Justice M. M. Punchhi of the Punjab & Haryana High Court (as his lordship then was) observed that where the imposition of penalty has flattered there does not survive a case to launch criminal prosecution against the assessee. Further held that once the case for sustenance of penalty is not made out it equally would not be a case for criminal prosecution. With these observations criminal proceedings against the assessee was quashed. These observations on all for apply to the facts of the case in hand.
(12) Mr. Jolly on the other hand contended that in Uttam Chand's case the Court was not dealing with the question of concealment, but was considering the question of genuineness of partnership firm. I am afraid this contention has no substance. In that case criminal prosecution had been launched because of filing of false return showing existence of genuine partnership firm. The Tribunal gave finding that the partnership firm was genuine. The Supreme Court held that in view of the finding recorded by the Tribunal, the criminal prosecution on the same facts cannot survive and thus the prosecution was quashed. We have to see the law laid down in this case and not the facts. Facts in each case can differ, but the ratio of the decision is relevant. If the fact finding authority under the Act decides a particular fact which has a direct bearing on the criminal prosecution then on that very ground criminal prosecution cannot be launched nor would survive. Reliance by Mr. Jolly on the decision of this Court in the case of Dharma Prathisthan & Ors. (Supra) is of no help to him. In that case the Tribunal had yet not given its decision on the allegation forming the basis of the criminal complaint. Therefore, relying on the observations of Supreme Court in the case of P. Jayappan that since the decision of the Tribunal was still awaited hence the question of quashing criminal proceeding was premature. But that is not the case in hand. As already observed above in the present case Tribunal has already rendered its verdict holding that there was no willful concealment rather revenue authority itself termed the disclosure made by the assessee in the return as excessive, hence the provisions of Section 276 do not get attracted in the facts of this case. Similarly, the decision relied by Mr. Jolly of this Court in the case of General Sales P. Ltd. & Anr. (Supra) has no bearing on the facts of this case. In General Sales P. Ltd. & Anr. (Supra) after the summons were issued by the Registry, the petitioner approached the. High Court under Section 482 of the Cr. P.C. for quashing of the proceedings on the ground that no prima facie case existed. It was in this background -that this Court opined that petition was premature. Proper course open to the petitioner was to lead evidence before the Criminal Court and prove his case. But that again is not the case in hand. Here the authority under the Act i.e. the Tribunal has already decided the case in favour of the appellant, thereby cancelling the penalty and holding that there was no concealment of facts, hence no support can be had by Mr. Jolly from tile observations in General Sales P. Ltd. & Anr.
(13) In the case of Ashok Biscuit Works & Ors. (Supra) the facts are quite different. In that case revised statement was field by the assessee in time which was accepted by the department. The court held that revise statement could not be a ground for a quashing the criminal proceedings which were launched on the basis of False statement and verification made in the original return field by the assessee. That again is not the case in hand.
(14) In view of the above discussion, it can safely be concluded that since the penalty proceedings in this case have been cancelled/quashed by the final facts finding authority under the Act by holding that there was a complete satisfactory explanation offered by the assessee and that there was no concealment of fact and cancelled the penalty. In view of these facts I see no justification for the criminal proceedings to continue. Prosecution cannot be allowed to continue after the penalty proceedings have been finally quashed. Reason is obvious, once the basis and foundation of criminal complaint under Section 276C(1) and 277 read with Section 278 of the Act is knocked out it would serve no useful purpose to permit the criminal proceeding to go on. When the penalty order has been cancelled by the Tribunal the question of proceeding further with the Criminal Court, to my mind, would not be justified. The Income Tax Appellate Tribunal under the Act is the final fact finding authority and its decision unless suffer from any error of law, finding of fact recorded by the Tribunal is unassailable. Since the finding recorded by the Tribunal is in favour of the appellant and the penalty has been cancelled, I am of the considerd view that criminal proceedings does not survive.
(15) Appellants are accordingly discharged and further proceedings in Criminal complaint No. 1523/1 of 1987 pending in the court of Addl. Chief Metropolitan Magistrate, Delhi, are dropped with no order as to costs. Order accordingly.