Orissa High Court
Income-Tax Officer vs Bijay Kumar Sharma And Mahabir Prasad ... on 23 September, 1994
Equivalent citations: [1995]211ITR899(ORISSA), 1995(I)OLR213
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. All the four cases are indeed an assortment having a common axis, identical questions. They are, therefore, disposed of by this common judgment to govern each one of them. Prosecutions launched by the income-tax authorities (hereinafter referred to as "the Revenue") against Bijaya Kumar Sharma and Mahabir Prasad Sharma (each of them referred to as "the assessee" by name) were dropped by the Additional Chief Judicial Magistrate (Special), Cuttack (in short, "A. C. J. M."), by the impugned order in each case. Such action is the subject-matter of challenge.
2. The litigous history, undisputed in major particulars, sans unnecessary details runs as follows : Bijaya and Mahabir filed returns of income as required under the Income-tax Act, 1961 (in short, "the Act") before the Income-tax Officer, Balangir, for the assessment years 1987-88 and 1988-89 on March 30, 1990, and April 2, 1990, respectively. The Assessing Officer did not accept the income returned. Basing on the materials collected during a search conducted in the assessee's premises, it was concluded that there was concealment of income. The main basis for enhancement was the conclusion that a large number of bank drafts were encashed in the State Bank of India, Kantabanji, by many unknown persons who had been identified by the assessee. In the course of assessment proceedings, the assessee failed to produce those persons, and even could not give their address and submitted evasive replies. The Assessing Officer held that the bank drafts related to concealed income of the assessee. The Commissioner of Income-tax, Orissa, gave sanction for lodging a complaint as according to him, it was evident that the assessee had wilfully attempted to evade tax, etc., and had made false statements in the verification. According to him, additions were made after giving detailed reasons. At this juncture, it is necessary to note the income returned, assessed, the amount of bank drafts involved and the suppressed turnover estimated in relation to such drafts for 1987-89. They are as follows :
Assessee and assessment year Income returned Bank drafts involved Suppressed turnover estimated Income assessed Rs.
Rs.
Rs.
Rs.
Bijaya 1987-88 34,860 6.52,000 18,00,000 3,26.190 Mahabir 1987-88 58,270 2,12,000 15,00,000 3,30,340
3. Similar estimates were made for 1988-89 and as against the returned incomes of Bijaya and Mahabir at Rs. 31,480 and Rs. 46,160 assessments were made at Rs. 2,02,830 and Rs. 3,81,630, respectively. Additions were also made on several counts, in addition to income from estimated turnovers based on the amounts covered by bank drafts encashed by untraced persons. The assessments were assailed in appeals before the Commissioner of Income-tax (Appeals), Orissa. So far as the estimate of turnover is concerned, the assessee's stand was that the same was irrational and without any basis when considered vis-a-vis the amount of bank drafts encashed. This plea found acceptance by the Commissioner of Income-tax (Appeals) who observed that adequate material was not there to justify the estimation and was of the view that the assessment should go back to the file of the Assessing Officer for being done de novo after proper enquiry and investigation. He accordingly set aside the assessment. The assessees moved the learned Additional Chief Judicial Magistrate to drop the proceedings as according to them the basis for criminal proceeding has vanished. The motion was resisted by the Revenue.
4. It was urged that merely because the assessment was set aside for reassessment, the criminal proceeding does not come to a grinding halt. The learned Additional Chief Judicial Magistrate held that it would be sterile pursuit to continue the proceeding after the assessment was set aside. The order in each case is assailed. According to the Revenue, the mere existence of a reassessment proceeding is not sufficient to drop the criminal proceeding in respect of offences relatable to Sections 276C and 277 of the Act. According to the assessees, the court has to give due respect to the adjudication by an authority under the Act. The order of the learned Additional Chief Judicial Magistrate is irreversible.
5. Section 276C deals with wilful attempt to evade tax, etc. The section was incorporated with effect from October 1, 1976, promoted by recommendation contained in paragraph 2.88 of the Wanchoo Committee's Final Report (Direct Taxes Enquiry Committee's 47th Report), dated February 28, 1972. The provision reads as follows :
"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,--
(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.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest 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 with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and shall, in the discretion of the court, also be liable to fine.
Explanation.--For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person,--
(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry or statement in such books of account or other documents ; or
(iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents ; or
(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof."
6. In order to make the provisions of Section 276C applicable, the action of the person concerned has to be a wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act. The use of the word "wilful" is reflective of the legislative intent that concept of mens rea is of primal importance. "Wilful" is a word of familiar use in every branch of law and although in some branches of law, it may have a special meaning, generally, as used in courts of law, it implies nothing blameable, but merely that the person of whose action or default the expression is used, is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent", (per Bowen L. J. In re Young and Harston's Contract [1886] 31 Ch D 168, 174 (CA). "Wilful" like "negligence" is sometimes a relative term. (See Caldwell v. Canadian National Railways [1940] 3 WWR 247). Whatever is intentional is wilful (per Day J. in Gayford v. Chouler [1898] 1 QB 316). "If a man permits a thing to be done, it means that he gives permission for it to be done, and if a man gives permission for a thing to be done, he knows what is to be done or is being done, and, if he knows that, it follows that it is wilful", (per Lord Goddard C. J. in Lomas v. Peek [1947] 2 All ER 574 (KB)).
7. The concept of mens rea has received a new dimension in the Act, because of Section 278E inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from September 10, 1986. The said provision prescribes that in any prosecution for any offence under the Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state, but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. The Explanation to Sub-section (1) of Section 278E states that "culpable mental state" includes intention, motive or knowledge of a fact, or belief in, or reason to believe, a fact. Under Sub-section (2), a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.
8. What is wilful attempt to evade tax is clarified to certain extent by the Explanation appended to Section 276C. Any person (i) who has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under the Act) containing a false entry or statement, or (ii) who makes or causes to be made any false entry or statement in such books or document, or (iii) who omits or causes to be omitted any entry or statement in such books or documents, or (iv) who causes any other circumstance to exist which will have the effect of enabling him to evade any tax, penalty or interest chargeable or imposable under the Act or the payment thereof is treated to be an offender. Sub-sections (1) and (2) of Section 276C deal with two different situations. Sub-section (1) deals with attempts to evade. In other words, it refers to evasion of tax, penalty or interest chargeable or imposable under the Act. It is relatable to a stage before charging or imposing tax, penalty or interest. That may include wilful suppression in the returns before completion of assessment. Sub-section (2) deals with evading "the payment of tax, penalty or interest under the Act". The words "chargeable" or "imposable" are not there. It is, therefore, clear that Sub-section (2) refers to cases of evasion after charging or imposition.
9. Section 277 provides for punishment in cases of false verification in a statement or delivery of a false account or statement. The verification must be one which is necessary under any of the provisions of the Act or the Rules. The offence is committed if the verification, account or statement is false or the person making or delivering it either knows it to be false, or believes it to be false, or does not believe it to be true.
10. The assessee's stand as indicated above is that without an effective order of assessment, there is no foundation for the conclusion about evasion. The appellate authority having set aside the assessment, the foundation has collapsed. Strong reliance is placed by the Revenue on P. Jayappan v. S.K. Perumal, First ITO [1984] 149 ITR 696 ; AIR 1984 SC 1693, to contend that mere pendency of a reassessment proceeding cannot act as a bar for a criminal proceeding.
11. Both the stands are really sweeping generalisations. The ingredients of the offences encompassed by Sections 276C and 277 have nothing to do with the actual assessment. When from materials on record, the concerned authority finds that prima facie the accused has committed offences described by the sections, after necessary sanction by the authority prescribed in Section 279, a complaint can be filed. "Reassessment" is included in the definition of "assessment" in terms of Section 2(8) of the Act. Section 147 provides for assessment or reassessment in case income has escaped assessment. Section 251 deals with powers of the first appellate authority to direct fresh assessment after setting aside the assessment. Section 254 empowers the Appellate Tribunal to pass such order as it thinks fit. The mere existence of a reassessment proceeding or a fresh proceeding initiated on the basis of an appellate order does not in all cases necessitate dropping of a criminal procedure. Where without any final decision, and before final disposal, the appellate authority has merely directed further inquiry in terms of Section 250(4) by the Assessing Officer, a criminal proceeding is not to be dropped. The position shall, however, be different where the basis of assessment is not accepted, and the appellate authority has directed de novo assessment as set out in Section 251(1)(a). In such a case, the criminal proceeding can in a given case be dropped giving liberty to the Revenue to initiate fresh proceedings if necessary. There may be a case where the allegation of suppression has been accepted by the appellate authority, but a direction has been given to the Assessing Officer to refix the quantum of enhancement to be made. In such a case, it shall not be proper to drop the proceeding with liberty to file a fresh complaint. The nature of accusations necessitating the filing of a complaint is very relevant. The nature of conclusion of the appellate authority vis-a-vis that accusation has considerable relevance while determining the question whether the criminal proceeding is to be continued. The court before which the complaint is pending has to take note of decisions rendered by the statutory authorities under the Act. Where they are in favour of the accused and have effect on the proceeding before the court, it has to decide whether the substratum of controversy has vanished. In an appropriate case, it may drop the proceeding in the light of an order passed under the Act. An illustrative case is one which came up for consideration of the apex court in Uttam Chand v. ITO [1982] 133 ITR 909. In that case, in view of the finding of the Income-tax Appellate Tribunal that Smt. Janaki Rani was a partner of the assessee-firm, which was a genuine one, there was no scope for prosecuting the assessee-firm for filing false returns. The position would be different when the adjudication by the statutory authorities is adverse to the accused. In such a case, the court shall judge the case independently on the evidence placed before it. It may even direct acquittal on consideration of such evidence.
12. Where the court is faced with the question whether the proceeding is to be dropped, it has to consider the nature of accusations and essence of adjudication in any proceeding under the Act. In case the matter is receiving fresh consideration in any proceeding under the Act, depending on the nature of such consideration two courses are open to the court. One is to drop the proceeding giving liberty for a fresh complaint. The other is to adjourn or postpone hearing of the case in exercise of the discretionary power under Section 309 of the Code of Criminal Procedure, 1973 (in short, "the Code"). The latter course, however, is not to be exercised in a routine manner. The discretion to adjourn or postpone should be exercised judicially, and should not be allowed to frustrate the object of criminal proceedings. It should ordinarily be allowed to run its normal course, unless disposal of proceedings before the authority under the Act is imminent.
13. In the cases at hand, the basis for accusation has not vanished. There was only a direction to do the assessment de novo after fixing the turnover, on the basis of proper enquiry and investigation. The assessee's challenge before the Commissioner of Income-tax (Appeals) related to fixation of turnover. Its plea was that the estimates were high when considered visa-vis the amount of bank drafts detected. The turnovers to be assessed may have relevance to the quantum of punishment, if any awarded. In that view of the matter, the order of the learned Additional Chief Judicial Magistrate is indefensible and is vacated. I make it clear that no observation or conclusion made shall be construed to be the expression of opinion about the merits of the case relating to liability for prosecution. The parties shall appear before the learned Additional Chief Judicial Magistrate on October 21, 1994, and indicate about the stage of fresh assessment. Further proceedings before the learned Additional Chief Judicial Magistrate shall be kept in abeyance till December 31, 1994. Fresh assessment shall be completed by that date, if pending. Parties shall give intimation to the learned Additional Chief Judicial Magistrate immediately after assessment is completed.
14. Applications are accordingly disposed of.