Bangalore District Court
Dy. Commissioner Of I.T vs Ms.Kaypee Exporters -Aop- Firm on 21 November, 2024
KABC090000392007
Presented on : 01-08-2007
Registered on : 01-08-2007
Decided on : 21-11-2024
Duration : 17 years, 3 months, 20 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 21st day of November 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M.,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C. No.725/2007
Complainant: The Income Tax Department
Deputy Commissioner of Income Tax,
Central Circle-1(1),
Room No.303, 3rd Floor,
C.R. Buildings, Queen's Road,
Bengaluru - 560 001.
(Reptd. By Spl. Pubic Prosecutor)
Vs.
Accused : 1. M/s. Kaypee Exporters (AOP)/Firm)
No.429, 1st Cross, HAL II Stage,
Indiranagara,
Bengaluru - 560 008.
2. K. Palaniswamy
S/o. S.R. Kumarappa Gounder,
Managing Partner/Managing Member,
2 C.C.No.725/2007
M/s. Kaypee Exporters (AOP)/Firm)
No.429, 1st Cross, HAL II Stage,
Indiranagara,
Bengaluru - 560 008.
3. Sri. P. Veeraraja
S/o. Sri. K. Palaniswamy,
Working Partner/Managing Member,
M/s. Kaypee Exporters (AOP)/Firm)
No.429, 1st Cross, HAL II Stage,
Indiranagara,
Bengaluru - 560 008.
4. Sri. D.V. Jayaraman (Split Up)
(Reptd. By Sri. LN., Advocate)
:JUDGMENT:
The instant case emanates from the complaint made by the complainant against the accused persons for having committed the offences punishable U/s.276C(1), 277, 277(A) r/w Section 278B of the Income Tax Act, 1961 (hereinafter referred to as 'the IT Act').
2. The complainant's case in nutshell is as under:
The accused No.1 company i.e., M/s. K.P. Exporters is an Association of Persons during the relevant Assessment Years i.e., 1999-00 to 2001-02, being a partnership firm. The said accused No.1/assessee firm is represented by its Managing Partner accused No.2. The accused No.1/assessee is claimed to be engaged in the business of exporting the Home Textiles and Fabric to USA, Canada etc. The accused No.3 is claimed to be the working partner of the accused No.1/assessee having 3 C.C.No.725/2007 admitted to be the in-charge of accounting and Income Tax related matters of accused No.1/assessee. The accused No.4 is the practicing Chartered Accountant, who audited the books of accounts of the accused No.1/assessee and having issued certificate in Form No.10CCAC of the IT Act. It is the complainant's case that, the accused No.1/assessee filed its returns for the Assessment Years 1999-00 to 2001-02 on
03.01.2000, 30.03.2001 and 08.05.2001 respectively by declaring the income therein. It is further submitted as to the accused No.1/assessee filed the aforesaid returns for the Assessment Years 1999-00 and 2000-01 in the status of an Association of Persons and with respect to the Assessment Year 2001-02 in the status of Firm before the Income Tax Officer, Ward-1(1), Karur, Tamilnadu. It is further alleged that in the aforesaid IT returns, a deduction U/s.80HHC to an extent of Rs.3,61,24,316/-, Rs.80,65,781/- & Rs.27,12,133/- was claimed for the Assessment Years 1999-00 to 2001-02 respectively. The said returns were verified and signed by the accused No.2 in his capacity as a Managing Partner of accused No.1/assessee and the said returns were accompanied by the returns in the Form Nos.3CD, 3CB and 10CCAC. It is further claimed that, the accused No.2 being the Managing Partner and accused No.3 being involved in the day to day activities of accounting as well as Income Tax affairs of the accused No.1/assessee had submitted the report U/s.80HHC (4A) of the Act in Form No.10CCAC claiming the deduction by the accused No.1/assessee on the basis of the sale proceeds received by the accused No.1/assessee in convertible Foreign Exchange.
4 C.C.No.725/20073. During the scrutiny assessment initiated against the accused No.1/assessee with respect to the Assessment Year 2001-02, the notice was issued U/s.143(2) of the Act on 21.01.2003 by the DCIT, Circle-II, Trichy. During the said assessment proceedings, it was found that the accused No.1/assessee had claimed deduction U/s.80HHC for the Assessment Year 1999-00 in violation of the requirement contemplated under Sub Section 2(a) of the Section 80HHC of the IT Act without actually receiving the Foreign Exchange from the Stephen House Associates, USA. In result the proceedings U/s.147 r/w Section 148 of the Act was initiated by ACIT, Circle-II, Trichy, the accused No.1/assessee in response to the aforesaid notice dated 21.01.2003 filed a reply stating as to the returns filed on 31.01.2003 with respect to the Assessment Year 1999-00 be treated as response to the notice. During the said assessment proceedings, the accused No.1/assessee admitted vide letter dated 29.03.2004 regarding having received the Foreign Exchange from the Stephen House Associates, USA, for which, it was claimed the deduction U/s.80HHC of the IT Act. It is further the complainant's case that, the search was initiated in the business premises of the accused No.1/assessee on 03.04.2003 U/s.132 of the Act. In response to the earlier notice dated 30.03.2004, the accused No.4 appeared on behalf of the accused No.1/assessee in the assessment proceedings and based upon the search, again the Assessing Officer i.e., ACIT, Circle-II, Tiruchinapalli, an Assessment Order dated 29.03.2004, wherein, the returns submitted by accused No.1/assessee pertaining to the Assessment Years 1999-00 and 2001-02 were accepted.
5 C.C.No.725/2007During the course of aforesaid search, the incriminating documents in connection to having claimed deduction without receipt of Foreign Exchange proceeds, with an intention to claim more exemption was unearthed.
4. Thereafter, the case in connection to the accused No.1/assessee was transferred and centralized with ACIT, Central Circle-1(2), Bengaluru as per the Notification dated 13.12.2004 by CIT, Tiruchinapalli. Subsequent to the case being centralized with ACIT, Bengaluru, a notice U/s.158BC of the Act dated 04.02.2005 was issued to the accused No.1/assessee to file Block Return within 16 days from the receipt of the notice. Pursuant to the accused No.1/assessee having not chosen to file the Block Return in response to the notice dated 04.02.2005, the seized materials have been examined and issues have been identified and detailed proposal vide letter dated 25.02.2005 along with notice U/s.142 of the Act dated 25.02.2005 was sent to the accused No.1/assessee, requesting the assessee to furnish the details completing the Block Return. The accused No.1/assessee again did not replied to the said notice dated 25.02.2005. Thereafter, again notice U/s.142(1) of the Act was issued to the accused No.1/assessee on 05.04.2005 to file the Block Return of Income. Thereafter, the accused No.1/assessee submitted Block Return on 07.04.2005 disclosing an undisclosed income of Rs.8,65,725/- for the Assessment Year 2000-01 and Rs.95,557/- for the Assessment Year 2001-02 being the excess claim of deduction U/s.80HHC of the Act. The said Block Return disclosed regarding the accused No.1/assessee though 6 C.C.No.725/2007 was not eligible for deduction U/s.80HHC on unrealized proceeds for the Foreign Exchange, the assessee has claimed the deduction contrary to the provisions of the Act.
5. It is further complainant's case that, the accused No.1/assessee with respect to Assessment Year 1999-00 had shown excess turnover to the tune of Rs.29,09.385/- and made an claim of deduction U/s.80HHC of the Act to an extent of Rs.9,27,254/-. The said claim by declaring the excess turnover is very much observed and forthcoming in the Assessment Order dated 29.04.2005 passed by ACIT, Bengaluru. The earlier Assessment Orders passed by the Assessing Officer i.e., ACIT, Tiruchinapalli with respect to the Assessment Years 1999-00 and 2001-02 did not consider the availability of the claim of deduction U/s.80HHC of the Act. Pursuant to the search proceeding which resulted in the seizure of the books of accounts of the accused No.1/assessee, the sale proceeds in convertible Foreign Exchange being not received in time, the Order dated 24.03.2004 passed by earlier Assessing Officer were considered erroneous and prejudiced to the interest of Revenue. Hence, the Assessment Order dated 29.03.2004 passed by ACIT, Tiruchinapalli was set aside by the CIT, Bengaluru vide order dated 24.02.2006 and directed the Assessing Officer to re-frame the assessments by allowing the correct deductions U/s.80HHC of the Act after reducing the sale proceeds which are not realized in convertible Foreign Exchange. Consequently, the Assessing Officer vide orders dated 27.12.2006 and and 19.12.2006 passed and Assessment Order with respect to Assessment Years 1999-00 and 2001-02 7 C.C.No.725/2007 disallowing the excess claim made by the accused No.1/assessee U/s.80HHC of the Act.
6. It is further the complainant's case that, the accused No.1/assessee being duly represented by its partners i.e., accused Nos.2 & 3 have made false claim of deduction in the return of income U/s.80HHC of the Act without realizing the sale proceeds in convertible Foreign Exchange within stipulated time, thus they have deliberately and intentionally attempted to evade the tax. The accused No.2 being the Managing Partner having signed the returns and verified the said returns is alleged to have made false declaration knowingly and willfully with a knowledge that accused No.1/assessee had not received the sale proceeds as discussed above. The accused No.3 being the working partner of accused No.1/assessee being in-charge of the day to day accounts and matters relating to the Income Tax of the accused No.1/assessee is also involved in the false claim of the deduction, in having willfully attempted to evade the Income Tax on the basis of the false certificate issued by the accused No.4 by colluding with him with an ulterior intention to mislead the authorities by claiming deduction U/s.80HHC of the Act. It is also claimed as to the accused No.3 admitted the false claim in his statement recorded on 03.04.2003 U/s.132(4) of the Act, thereby it is claimed that the accused No.1/assessee managed by the accused Nos.2 & 3 have knowingly and willfully indulged in an attempt to evade the taxes on the basis of false certificate in Form No.10CCAC by availing deduction U/s.80HHC of the Act with respect to Assessment Years 1999- 8 C.C.No.725/2007 00 to 2001-02, thereby the accused Nos.1 to 4 have committed the offence punishable U/ss.276C(1), 277, 277A, 278 r/w Section 278B of the Income Tax Act, 1961. Hence, this complaint.
7. This court on having received the complaint, the sworn statement of the complainant was dispensed as the said complainant was a public servant in view of the Section 200(a) of the Cr.P.C. Thereafter, this court took cognizance of an offences punishable U/ss.276C(1), 277, 277A, 278 & r/w Section 278B of the IT Act.
8. In response to the summons issued to the accused persons, on appearance of accused Nos.2 & 3, they were enlarged on bail. The accused No.4 could not be secured despite issuance of process, NBW as well as proclamation. Hence, the case against the accused No.4 was split up vide order dated 12.08.2022. Consequently, C.C. No.82/2022 was registered on the file of this court.
9. Thereafter, the Evidence before Charge as contemplated U/s.244 of the Cr.P.C., was recorded and complainant Department got examined three witnesses on its behalf and got marked in all 12 documents as Ex.P-1 to Ex.P-
12. After hearing the learned counsel for complainant i.e., Spl. PP and counsel for the accused persons, the charge was framed. The accused Nos.2 & 3 pleaded not guilty and claimed to be tried.
9 C.C.No.725/200710. The EBC was considered as examination-in-chief at the instance of the learned Spl. PP pursuant to having filed memo for adoption. The complainant/PW-1, who was examined on behalf of the Department during EBC was reported to be dead after framing of charge. Hence, he was not subjected to cross-examination. The PW's-2 & 3 were fully cross-examined and got marked Ex.D-1 to Ex.D-5 by way of confrontation through the PW-2.
11. The accused Nos.2 & 3 denied the incriminating materials appearing against them in the testimony of the PW's- 2 & 3, while recording their statements U/s.313 of Cr.P.C. The accused Nos.2 & 3 have not chosen to adduce their defence evidence.
12. Heard the arguments canvassed by the learned Spl, PP and the counsel for accused persons. The learned counsel for the accused persons has also filed his written submissions along with authority.
13. On considering the complaint, evidence on record and arguments addressed by either parties, the following points would arise for the determination of this court viz.:
1. Whether the complainant proves beyond all reasonable doubts that, accused No.1/assessee being the firm engaged in the business of exporting the Home Textiles and Fabrics to USA & Canada, during the course of search scrutiny conducted by the complainant Department was found to have claimed deduction U/s.80HHC of the IT Act for the Assessment Year 1999-00, without actually receiving the Foreign Exchange from Stephen House Associates, USA with a willful and deliberate intention to evade payment of 10 C.C.No.725/2007 taxes by claiming excess deduction U/s.80HHC to the extent of Rs.9,27,254/- by showing excess turnover to the tune of Rs.27,09,385/- and thereby committed the offence punishable U/s.276C(1) of IT Act, 1961?
2. Whether the complainant further proves beyond all reasonable doubts that, accused No.1/assessee being represented by its partners i.e., accused Nos.2 & 3 made a false claim of deduction in the return of income U/s.80HHC of the Act without realizing the sale proceeds in convertible Foreign Exchange within stipulated time, deliberately and intentionally and thereby submitted false statement in verification and committed offences punishable U/s.277 & 277A of the IT Act?
3. Whether the complainant further proves beyond all reasonable doubts that, accused Nos.2 & 3 induced the accused No.4 to make and deliver an account by submitting the return of income though they had full knowledge as to the said claim is false and thereby abetted the accused No.4 to submit the report in Form 10CCAC of the IT Act and committed offence punishable U/s.278 of the IT Act?
4. What order?
14. The findings of this court on the above said points are as under:
Point No.1: In the Negative
Point No.2: In the Negative
Point No.3: In the Negative
Point No.4: As per final order
for the following:
REASONS
15. Point No.1 to 3: As these points are inter connected arising out of same incident, they are taken up for discussion together in order to avoid reiteration of facts.
11 C.C.No.725/200716. The complainant Department in order to establish its case as to accused No.1/assessee along with accused Nos.2 & 3 being the Managing Partner as well as Working Partner having involved in the claiming the deduction U/s.80HHC of the IT Act wrongfully with an ulterior intention of claiming more exemption than that of the eligible, without receiving the Foreign Exchange proceeds and having made false statement on the basis of the false certificate obtained under Form No.10CCAC with respect to the Assessment Years 1999-00 to 2001-02 and thereby the accused Nos.1 to 3 are alleged to have committed offences punishable U/s.276C(1), 277 & 277A of the IT Act.
17. The complainant who has been arrayed as CW-1 is examined as PW-1 has reiterated regarding the status of accused No.1/assessee being the AOP for the Assessment Years 1999-00 and 2000-01 and thereafter being converted into partnership firm in the Assessment Year 2001-02. It is also deposed regarding the accused Nos.2 & 3 being the Managing Partner and Working Partner of accused No.1/assessee and accused No.2 being Managing Partner having verified and signed the assessment returns pertaining to the aforesaid Assessment Years. It is also deposed as to during the course of search U/s.132 of the IT Act conducted at the business premises of accused No.1/assessee on 03.04.2003, the incriminating documents seized disclosing the accused No.1/assessee having not received the Foreign Exchange proceeds, but having claimed deduction U/s.80HHC wrongfully with an intention to claim exemptions though not 12 C.C.No.725/2007 eligible under the IT Act. It is also reiterated regarding the letter dated 24.12.2001 having admission regarding accused No.1/assessee having not received the Foreign Exchange to an extent of Rs.1,78,994/- the said letter being addressed to Enforcement Officer, Bengaluru being duly signed by accused No.3. As such, it is claimed that the accused No.3 as well as the accused No.2 had knowledge, intentionally, deliberately as well as willfully claimed deduction U/s.80HHC of the IT Act though they have not received the Foreign Exchange. The said fact is also forthcoming from the statement of accused No.3. It is also deposed regarding the accused No.2 had also admitted regarding the Block Return filed in response to the notice issued by the complainant Department U/s.158BC of the IT Act after the search. It is specifically deposed regarding the accused No.1/assessee had claimed excess deduction to an extent of Rs.9,27,254/- with respect to Assessment Year 1999- 00 and also alleged that the accused Nos.2 & 3 along with accused No.1/assessee have attempted to evade the tax by giving the false statement and making false claim on the basis of false certificate in Form No.10CCAC and committed an offence alleged in the complaint.
18. The complainant in support of his oral testimony has produced and got marked in all 8 documents as Ex.P-1 to Ex.P-8. Ex.P-1 is the original sanction order dated 27.07.2007 wherein, the Commissioner of Income Tax (Central), Bengaluru has accorded sanction to prosecute the accused persons for having committed offences alleged in the complaint. Ex.P-2 is the complaint lodged by the complainant on the basis of Ex.P-1 13 C.C.No.725/2007 sanction order against the accused persons for having committed offence punishable U/s. U/s.276C(1), 277, 277A & 278 r/w Section 278B of the IT Act. Ex.P-3 is the acknowledgment pertaining to Assessment Year 1999-00. Ex.P-4 is the certified true copy of the letter dated 24.12.2001 duly signed by accused No.3 addressed to Enforcement Officer, Directorate of Enforcement, Bengaluru, wherein,the documents have been furnished to the Enforcement Officer along with the letter and the details pertaining to outstanding export on 24.12.2001 has been submitted. The said response was given in reply to the summons issued by the Enforcement Officer. Ex.P-5 is the statement of accused No.3 recorded U/s.132(4) of the IT Act dated 03.04.2003. Ex.P-6 is the statement of accused No.3 recorded on oath U/s.131 of the IT Act on 04.07.2007. Ex.P-7 is the certified true copy of the Block Return submitted by the accused No.1/assessee. Ex.P-8 is the Form No.10CCAC dated 31.01.2000 submitted by accused No.4 with respect to Assessment Year 2000-01. The said Ex.P-8 is accompanied by Annexure-A containing the computation of the Income Tax.
19. PW-1 could not be cross-examined by the accused persons pursuant to the PW-1 being passed away. The testimony of PW-1, which has not been subjected for cross- examination i.e., rebuttal by way of cross-examination came to be strucked by the court.
20. CW-3, who was the then Assistant Commissioner of Income Tax, Central Circle-1(2), Bengaluru is examined as 14 C.C.No.725/2007 PW-2. This witness has deposed as to having received the file from Commissioner of Income Tax, Trichy in connection to the accused persons. On having examined the records considering the search in the premises of accused No.1/assessee, found wrongful claim of deduction U/s.80HHC of the IT Act and got issued notice U/s.158BC of the IT Act calling upon the accused No.1/assessee to file the Block Returns. He has also deposed regarding no any response being received in connection to the said notice. Thereafter, having issued notice U/s.142(1) of the IT Act dated 25.02.2005 calling upon the accused No.1/assessee to produce the books of accounts to complete the assessment proceedings and also accounted regarding the questionnaire/proposals being enclosed. He has also deposed regarding the accused No.1/assessee having filed the Block Returns on 07.04.2005 disclosing the undisclosed income in the previous returns and admitted that the accused No.1/assessee had wrongly claimed the deduction U/s.80HHC of the IT Act. It is also accounted regarding the total undisclosed income determined for the Assessment Year 1999- 00 including the excess/wrongful claim U/s.80HHC of the Act of Rs.9,27,254/- and total income which was undisclosed in the previous returns was Rs. 39,75,825/-, the tax payable including the interest was Rs.30,89,829/-.
21. In view of the PW-1 having been passed away, pursuant to his testimony not being rebutted, the complainant got examined the PW-2 and got adduced further examination- in-chief and he has reiterated regarding the sanction order in the case on hand, complaint lodged by the PW-1, so also, the 15 C.C.No.725/2007 search being initiated in the case on hand prior to the Assessment Order so also role of the accused Nos.2 to 4 as well as quantum of evasion by the accused No.1/assessee in the Assessment Years 1999-00 to 2001-02. He has identified the Ex.P-1 to Ex.P-8 marked on behalf of the complainant.
22. The certified copies of the notices dated 11.02.2005 and 25.02.2005 are marked as Ex.P-9 & Ex.P-10 respectively, so also, the notice dated 25.02.2005 addressed to accused No.1/assessee requesting for details and clarification with respect to the block assessment is marked as Ex.P-11. Ex.P-12 is the certified true copy of the Assessment Order dated 29.04.2005 passed by the witness, while discharging the duties as Assistant Commercial of Income Tax, Central Circle- 1(2), Bengaluru in connection to the accused No.1/assessee.
23. PW-2 has been subjected to the cross-examination, wherein, the witness has been confronted with the order of CIT (Appeals) dated 14.03.2008 admitted regarding the contents of the said order. Hence, the copy of the order of the CIT (Appeals) dated 14.03.2008 is marked as Ex.D-1. The witness has pleaded ignorance regarding the Ex.D-1 being set aside by the order of ITAT, Bengaluru Bench vide order dated 05.06.2009. Again, the witness on being confronted with photo copy of the order of ITAT dated 05.06.2009 has admitted its contents and also regarding the discussion with respect to the deductions U/s.80HHC of the IT Act. The said order of ITAT dated 05.06.2009 is marked as Ex.D-2. It has also been admitted regarding the order dated 31.12.2010 passed by the 16 C.C.No.725/2007 Deputy Commissioner of Income Tax has disallowed the deduction U/s.80HHC of the IT Act. It has also been admitted regarding the contents of paragraph Nos.13 & 14 of the said order with respect to the disallowing the deduction U/s.80HHC of the IT Act. The photo copy of the order dated 31.12.2010 passed by the Deputy Commissioner of Income Tax, Central Circle-1(1), Bengaluru is marked as Ex.D-3. It is denied regarding the order of the CIT (Appeals) as per Ex.D-1 being in favour of the accused No.1/assessee. It is volunteered as to as per Ex.D-1, the CIT (Appeals) has confirmed the disallowance of deduction U/s.80HHC of the IT Act. The witness has pleaded ignorance regarding there is no any mention or reference regarding the willful intention on the part of the accused No.1/assessee to evade the tax in the computation of the deduction U/s.80HHC of the IT Act.
24. The witness has also pleaded ignorance regarding in case of two possible views taken by the Income Tax Department, the view taken by the Department in favour of accused No.1/assessee should be considered in the case on hand. He has also pleaded ignorance regarding the Government has raised the slab above Rs.25 lakhs to initiate the prosecution in connection to the Income Tax Department cases.
25. It is admitted as to as per Ex.D-3, the deduction U/s.80HHC of the IT Act was disallowed. It is also admitted as to as per the order at Ex.D-1, the appeal filed by the accused No.1/assessee has been allowed. It is also admitted as to as 17 C.C.No.725/2007 per the order of the ITAT dated 06.07.2023, the order passed by the CIT as per Ex.D-3 has been set aside. The certified copy of the order dated 06.07.2023 passed by the ITAT, Bengaluru is marked as Ex.D-4. The witness has admitted regarding the accused No.1/assessee having preferred an Appeal against the order dated 31.12.2010 at Ex.D-3 by preferring an Appeal before the Commissioner of Income Tax (Appeals), Bengaluru. The order dated 31.12.2010 by CIT (Appeals), is marked as Ex.D-5. The other allegations as to the Ex.D-5 has been set aside vide order at Ex.D-4 has been denied by the witness. The other suggestions as to the accused Nos.1 to 3 are innocents of the alleged offences and having submitted the returns with respect to the relevant Assessment Years on the basis of the professional advice by the accused No.4 has been denied by the witness.
26. CW-2, who was the then Assistant Director of Income Tax has deposed as to he was one of the authorized officer of the search conducted in the premises of the accused No.1/assessee on 03.04.2003 along with Mr. Amul S Kamath. He has also accounted regarding the said Mr. Amul S Kamath having recorded the statement of the accused No.3 during the course of aforesaid search in his presence and he has identified his signature on the statement of the accused No.3, which is already marked as Ex.P-5, the signature of the witness is already marked as Ex.P-5(a).
27. PW-3 has been subjected to the cross-examination by the learned counsel for the accused persons, wherein, he has 18 C.C.No.725/2007 pleaded ignorance regarding the materials which were found during the course of said search. He has also deposed as to during the course of recording the statement of the accused No.3, he was engaged in some other work. He has also pleaded ignorance regarding his involvement during the course of preparing the mahazar. The other suggestions as to the witness has been deposing falsely has been denied by the witness.
28. The learned counsel for the complainant vehemently argued that, the accused No.2 is the Managing Partner of accused No.1/assessee company. It is also highlighted regarding the accused No.2 having verified and signed the returns with respect to the relevant Assessment Years and it is also pointed out regarding the testimonies of the PW's-2 & 3 in the background of the search and seizure at the business premises of the accused No.1/assessee during the course of search proceedings and the incriminating documents being seized in the aforesaid premises which has resulted in evaluating the evasion of the Income Tax by the accused No.1/assessee. It is also vehemently argued that the Assessment Order as per Ex.P-12 is sufficient to incriminate the accused Nos.1 to 3 and the testimonies of the PW's-2 & 3 being that of officials attached to the Income Tax Department have withstood the test of the cross-examination. The learned Spl. PP representing the complainant Department emphatically stressed regarding Ex.P-12 disclosing an unsuccessful attempt to evade the Income Tax hatched by the accused No.1/assessee to prejudice the revenue to the exchequer. It is also argued as 19 C.C.No.725/2007 to the Section 276C(1), 277 as well as 277A so also Section 278 r/w Section 278B of the IT Act are squarely applicable to the case on hand. It is claimed that the ingredients of the alleged offences are very much forthcoming and the willful intention of the accused Nos.2 & 3 being representatives of the accused No.1/assessee can be gathered by examining all the documents relied upon by the complainant. Amongst these arguments, the learned Spl. PP has sought for conviction of the accused Nos.1 to 3.
29. The learned counsel for the accused persons vehemently argued that, the accused Nos.2 & 3 cannot be made liable in the case on hand pursuant to accused No.2 having submitted the returns with respect to the relevant Assessment Years on the basis of the advise given by the Chartered Accountant and the Certificate is mandated as per the Form No.10CCAC. It is pressed that as the report U/s.80HHC of the IT Act is mandatory while submitting the returns, the accused Nos.2 & 3 have only proceeded as per the professional advice of the accused No.4 and there is no any deliberate and willful intention on their part to evade the Income Tax to the complainant Department. It is also emphasized regarding there is no any allegations of intentional and willful attempt by the accused No.1/assessee as per the order of Assessing Officer and the counsel has highlighted Ex.D-1 to Ex.D-5 with respect to the ingredients of Section 276C(1) of the IT Act being demonstrated. It is also highlighted that Ex.D-2 i.e., ITAT, Bengaluru set aside the order of the Commissioner of Income Tax, Bengaluru at Ex.D-1. It is also 20 C.C.No.725/2007 emphasized that there is no any reference regarding the willful and deliberate intention to evade being whispered in the order at Ex.D-3 i.e., Assessment Order dated 31.12.2010. It is also stressed that Ex.D-4 set aside the order dated 19.02.2000 which was at Ex.D-5. Hence, it is argued that the instant prosecution is premature and the Assessment Order against the accused No.1/assessee is yet to got concluded as per the provisions of Income Tax Act. It is also argued that the testimonies of PW's-2 & 3 have not withstood the test of the cross-examination and since the fresh Assessment Order as per Ex.D-3 dated 31.12.2010 has been ordered to be reconsidered vide Ex.D-5. The claim of the complainant Department with an allegations of accused No.1/assessee duly represented by accused Nos.2 & 3 have willfully and deliberately evaded the Income Tax by claiming the deduction U/s.80HHC of the IT Act will not survive. In support of the aforesaid arguments, he has placed reliance upon the decision of the Hon'ble High Court of Karnataka in Vyalikaval House Building Co Operative Society Ltd., V/s. Income Tax Department, Central Circle-1(1), Bengaluru reported in (2019) 110 taxmann.com
107. Amongst these arguments, it has been sought to acquit the accused persons in the case on hand.
"Analysis and Evaluation of Evidence on record as well as Contentions"
30. In the case on hand, this court is bound to examine and determine regarding the accused Nos.1 to 3 having willfully attempted to evade the payment of tax by submitting the false returns by way of verification, pursuant to being the 21 C.C.No.725/2007 representatives of the juristic person accused No.1 company/assessee.
31. In the instant case, this court is bound to duly consider and appreciate the factum of the instant complaint being based upon the Assessment Order passed by Assistant Commissioner of Income Tax, Central Circle-1(2), Bengaluru (PW-2) on 29.04.2005 at Ex.P-12. The complainant Department is claiming the accused No.1/assessee having claimed the excess deduction of Rs.9,27,254/- U/s.80HHC of the IT Act on the basis of the excess turnover to the tune of Rs.27,09,385/-. The meticulous examination of the documents on record more particularly Ex.D-1 i.e., the order passed by the Commissioner of Income Tax (Appeals), Bengaluru dated 14.03.2008 transpires regarding the Assessment Order at Ex.P-12 which is the basis for the initiation of the prosecution has been modified by deleting the addition of Rs.9,27,249/- made by the PW-2 and consequently allowed the appeal preferred by accused No.1/assessee. This aspect of the Assessment Order being modified by allowing an appeal preferred by the accused No.1/assessee has been admitted by PW-2.
32. At this juncture, the arguments of the learned Spl. PP for the complainant Department as to Ex.D-1 being set aside by virtue of the order of ITAT, Bengaluru dated 05.06.2006, wherein, it was directed to decide regarding the deduction U/s.80HHC of the IT Act afresh as per Ex.D-2 and consequently the fresh Assessment Order dated 31.12.2010 as per Ex.D-3 has been passed in itself inlight of the accused 22 C.C.No.725/2007 No.1/assessee having challenged the Ex.D-3 before the Commissioner of Income Tax (Appeals), Bengaluru being dismissed vide order dated 19.02.2020 as per Ex.D-5 and later on the ITAT having set aside the order of dismissal appeal vide order dated 06.07.2023 as per Ex.D-5 with a direction to the Commissioner of Income Tax (Appeals), Bengaluru to decide the matter afresh. An anxious examination of the Ex.D-2 to Ex.D-5, it can be gathered that as on date of the prosecution i.e., as on the date of lodging of the complaint in the case on hand, though the Assessment Order at Ex.P-12 was operating against the accused No.1/assessee as well as other accused persons, during the course of the proceedings in the case on hand, the Assessment Order Ex.P-12 has been set aside and the competent Appellate Forum has ordered to the Assessing Officer to decide the matter afresh by passing the fresh Assessment Order.
33. It is pertinent to note that, it is not the complainant's case that the instant proceedings is being launched on the basis of the Assessment Order as per Ex.D-3 dated 31.12.2010. Even assuming for the sake of arguments, Ex.D-3 is pursuant to directions of the competent Appellate Authority, wherein, Ex.D-3 being the Assessment Order passed in continuation of the proceedings against the accused No.1/assessee, the said Ex.D-3 has been challenged by accused persons before the competent Appellate Forum i.e., Commissioner of Income Tax (Appeals), Bengaluru and the same is pending for consideration. That being the case, this 23 C.C.No.725/2007 court is justified to hold that the instant proceedings being premature.
34. Having regard to the mandate of U/s.276C(1) of the IT Act, in order to incriminate the assessee, the complainant is bound to establish the willful and deliberate intention on the part of the assessee to evade the payment of tax, penalty or interest. It is significant to note that, except the averments regarding the assessee/accused No.1 having made willful and deliberate attempt to evade the payment of tax as per the averments in the complaint at Ex.P-2, there is no any iota of clinching evidence or the materials on record to gather the accused No.1/assessee being duly represented by the accused Nos.2 & 3 having plotted a plan to evade the Income Tax with an intention to defraud the exchequer. It is relevant to note that, at this juncture, there is no any whisper regarding the deliberate intention and willful default by the accused No.1/assessee forthcoming as per the Assessment Order at Ex.P-12 or as per the sanction order at Ex.P-1 in order to infer and gather the aforesaid aspects regarding the ingredients of Section 276C(1) of the IT Act.
35. The other arguments of the Spl. PP as to the returns submitted by the accused No.1/assessee duly verified by the Managing Partner i.e., accused No.2 itself constituting an offences U/s.277 & 277A of the IT Act in itself in absence of the Assessment Order as to incriminate the accused No.1 having claimed the benefit on the basis of the return which was submitted with an ulterior intention to claim benefit by way of deductions by the Income Tax Department cannot be held to be 24 C.C.No.725/2007 tenable. The complainant Department in order to claim the returns to be the false statement being made is certainly bound to establish the returns being made contrary to the provisions of the Income Tax Act and the said return being decided and adjudicated by the competent authority as return made with an intention to claim the benefits which are not actually tenable and permissible under the Act.
36. It is relevant to note that, the complainant Department has also claimed that the accused Nos.2 & 3 being the Managing Partner as well as Working Partner of the accused No.1/assessee respectively are responsible for the day to day affairs and management of the accused No.1/assessee and thereby the accused No.1/assessee being the company has committed an offence and accused Nos.2 & 3 are liable to be prosecuted U/s.278B of the IT Act. Except the averments in the complaint at Ex.P-2 regarding the accused Nos.2 & 3 being the Managing Partner as well as Working Partner of the accused No.1/assessee, there is no iota of documentary evidence to infer regarding the accused Nos.2 & 3 being solely responsible for the day to day affairs and management of the accused No.1/assessee. The claim of the complainant Department as to as per the voluntary statements at Ex.P-5 & Ex.P-6, the accused Nos.2 & 3 admitted regarding their respective roles in the accused No.1 firm in itself cannot be considered by this court. This court precluded from accepting the said claim of the complainant Department and to solely rely upon the contents of the statements as Ex.P-5 and Ex.P-6 in the light of Section 91 of the Indian Evidence Act, which 25 C.C.No.725/2007 contemplates exclusion of oral evidence over the documentary evidence.
37. Likewise, the arguments of the learned Spl. PP as to the admission by the accused Nos.2 & 3 as per Ex.P-5 and Ex.P-6 i.e., voluntary statements regarding the claiming of deduction U/s.80HHC of the IT Act is sufficient to hold the accused Nos.2 & 3 having committed an offence by colluding with Chartered Accountant i.e., the accused No.4, which amounts to having committed offence U/s.278 of the Act, in absence of necessary documents more particularly the Assessment Order U/s.158BC r/w Section 143(3) of the IT Act, which is mandatory under the provisions of the IT Act in order to hold the evasion being attempted by the accused, which requires prosecution under the provisions of the Act.
38. The arguments of the learned Spl. PP as to the presumption as to the culpable mental state as contemplated U/s.278E of the IT Act is applicable with respect to the complainant's case cannot be accepted, pursuant to the failure of the complainant establish the initial claim as to existence of Assessment Order. The presumption certainly is available to the complainant after discharging the obligation to establish the claim by cogent and satisfactory evidence to gather the ingredients of the alleged offences.
39. In the case on hand, the testimonies of the PW's-2 & 3 having not withstood the test of cross-examination more particularly with respect to the very ingredients of the Section 276C(1) and 277 of the IT Act. The testimony of the PW-3 in so 26 C.C.No.725/2007 far as being the part of the investigation process while recording the statement of the accused No.3 has also elicited to be otherwise.
"Conclusion"
40. On overall examination of the complaint, evidence oral and documentary as well as the arguments so also the written arguments submitted by the accused Nos.1 to 3, this court is of the considered view that, the complainant Department has failed to establish the ingredients of the alleged offences by cogent and satisfactory oral as well as documentary evidence. This court is also justified to opine that, the instant prosecution is premature pursuant to the Assessment Order against the accused No.1/assessee is pending for consideration before the appropriate forum. This court is also inclined to hold that, the complainant case is tainted with substantial improvements, omissions and contradictions. It is needless to point out that, the complainant has failed to establish its case beyond all reasonable doubts, being the degree of the proof mandated with respect to the proof of criminal cases.
41. In the light of the discussions made supra, this court without any inhibition, proceeds to answer Point Nos.1 to 3 in the Negative.
27 C.C.No.725/200738. Point No.4: In view of the findings on Point Nos.1 to 3, this court proceeds to pass the following:
ORDER By exercising the power conferred under section 248(1) of Cr.P.C., the accused Nos.1 to 3 are acquitted of the offences punishable under sections 276C(1), 277, 277A & 278 r/w Section 278B of the Income Tax Act, 1961.
Consequently, the accused Nos.1 to 3 are set at liberty.
The corresponding bail bonds of the accused Nos.1 to 3 stands canceled.
The office is directed to place the entire case records along with C.C. No.82/2022 on the file of this court.
(Dictated to the Stenographer, transcribed, corrected and then pronounced by me, in open court on this the 21st day of November 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.28 C.C.No.725/2007
ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : K. Ramana Babu
PW-2 : R.N. Siddappaji
PW-3 : T.N.C. Sridhar
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Original Sanction Order
Ex.P-2 : Original Complaint
Ex.P-3 : Acknowledgment
Ex.P-4 : Certified True copy of Letter Dt: 24.12.2001
Ex.P-5 & 6 : Statements of Accused No.3
Ex.P-7 : Certified True copy of Block Return
Ex.P-8 : Form No.10CCAC Dt: 31.01.2000
Ex.P-9& 10: Certified True copies of Notices
Ex.P-11 : Certified True copy of Questionary
Ex.P-12 : Certified True copy of Assessment Order
List of witnesses examined on behalf of the Accused:
- Nil -
List of Documents examined on behalf of the Accused:
Ex.D-1 : C/c. of Order of the CIT (Appeals)
Ex.D-2 : C/c. of Order of the ITAT
Ex.D-3 : Order dated 31.12.2010 passed by the
Deputy Commissioner of Income Tax,
Central Circle-1(1), Bengaluru
Ex.D-4 : C/c. of Order of the ITAT
Ex.D-5 : Order dated 31.12.2010 by CIT (Appeals)
Presiding Officer,
Spl. Court for Economic Offences,
Bengaluru.
29 C.C.No.725/2007
Accused No.1 company.
Accused Nos.2 & 3 present.
Judgment pronounced in the open court (vide separate order) ORDER By exercising the power conferred under section 248(1) of Cr.P.C., the accused Nos.1 to 3 are acquitted of the offences punishable under sections 276C(1), 277, 277A & 278 r/w Section 278B of the Income Tax Act, 1961.
Consequently, the accused Nos.1 to 3 are set at liberty.
The corresponding bail bonds of the accused Nos.1 to 3 stands canceled.
The office is directed to place the entire case records along with C.C. No.82/2022 on the file of this court.
PRESIDING OFFICER.